What happened
Shares of Teekay (TK 4.11%) tumbled more than 12% by 3 p.m. EDT on Wednesday. Weighing on the shipping company's stock was the decision to eliminate its dividend and issue new debt to shore up its balance sheet.
So what
Teekay took several actions today to improve its financial profile. The company chose to eliminate its dividend to shareholders. It intends on retaining that cash to help further strengthen its balance sheet.
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In addition to that, the company announced plans to offer $300 million in senior secured notes due in 2024. The company expects to use the proceeds, as well as the cash on its balance sheet and available credit, to redeem all its outstanding 8.5% notes due in 2020. This refinancing should reduce interest expenses while extending its debt maturity by four years.
Now what
One of Teekay's priorities has been to refinance its 2020 bond to strengthen its financial foundation, which has been under pressure due to the challenges facing its business. It has taken a couple of notable steps in the last several months to position itself to accomplish this goal, including raising capital in January of 2018 to repay its secured debt and using a portion of its liquidity to repurchase some of its 2020 bonds. It's now able to redeem the balance of that debt, which will further bolster its financial profile.
While Teekay has come a long way over the past year, it still has work to do to get its finances back on solid ground, which is why the company also eliminated its dividend. Because of that, investors might want to watch this shipping stock from the sidelines until it's in a strong enough position to start returning cash to shareholders, once again.
