When 1 + 1 = TOO Merger of Teekay Offshore LP and Brookfield - - PowerPoint PPT Presentation

When 1 + 1 = TOO Merger of Teekay Offshore LP and Brookfield Business Partners

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disclaimer

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• r investment advisory services. Such an offer may only be made to qualified investors by means of delivery of a confiden-al private

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No tax or legal advice – Nothing contained herein cons-tutes financial, legal, tax, or other advice. The Fund makes no representa-on that the informa-on and opinions expressed herein are accurate, complete or current. The informa-on contained herein is current as of the date hereof, but may become outdated or subsequently may change. RISKS – An investment in the Fund is specula-ve due to a variety of risks and considera-ons as detailed in the Confiden-al Private Placement Memorandum of the Fund and this presenta-on is qualified in its en-rety by the more complete informa-on contained therein and in the related subscrip-on materials. Facts & opinions – Although the statements of facts in this presenta-on have been obtained and are based upon sources, JDP Capital Management, LLC (“JDPCM”), the general partner of the Fund believes to be reliable, JDPCM does not guarantee their accuracy and any such informa-on may be incomplete or condensed. All opinions and es-mates included in this report cons-tute JDPCM’s judgment as of the date of this presenta-on and are subject to change without no-ce No Recommenda'on – The men-on of or reference to specific strategies or instruments in this presenta-on should not be interpreted as a recommenda-on or opinion that you should make any purchase or sale or par-cipate in any transac-on.

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Investment Overview

² Transformational merger completed, market has not caught up ² $600M capital injection to fund immediate growth ² 300%+ upside over 2 – 5 years ² Long-term contracts with largest blue chip E&P companies ² Highly undervalued regardless of oil price recovery

Elevator Pitch: Teekay Offshore LP (NYSE: TOO)

“Abandoned public stub of a mission-critical marine infrastructure business, re-capitalized by Brookfield Business Partners selling for a 25% cash flow yield”

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Yield* Asset 25% TOO equity cash flow yield 7.6% Alerian MLP Index (AMZ) 5.7% US junk bond yield index 5.5% S&P 500 “earnings yield” 3.8% REITs 3.5% Utilities 2.7% AA corporate bond yield index 2.5% US 10-Year Treasury

We’re on a Treasure hunt

Finding yield is difficult today

*JDP es-mate , January 2018

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Table of Contents

Background & History of Teekay Corpora-on Overview of Teekay Offshore Why TOO Became Distressed White Knight Recapitaliza-on What’s It Worth? Summary

1 2 3 4 5 6

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Background & History of Teekay Corpora-on

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Origins of Teekay Corporation

² Founded in 1973 by Norwegian entrepreneur Torben Karlshoej “Teekay” ² Became one of the most respected shipping companies in the world ² Started by trading in niche shipping lanes to/from Asia ² Diversified into shuttle tankers, FPSOs and LNG assets ² Torben died in 1993 during a major industry downturn ² Torben’s brother led a turnaround and IPO in 1995

Gold standard in shipping

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Teekay 2.0

² Hard assets separated into three publicly traded Limited Partnerships ² Pass-through entities without standalone management ² IPO of NYSE: LNG, NYSE: TOO and NYSE: TNK between 2005 and 2007 ² As General Partner, Teekay Corporation earns:

² Management Fees ² Dividends ² Incentive Distribution Rights (IDRs)

Adopts MLP financial structure in 2005

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Dividends baby!

Why? Markets ofen place more value on management-fee streams than tradi-onal income

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Mlp model is born

Teekay Corporation (NYSE: TK) General Partner, Asset Manager

Teekay LNG, LP (NYSE: TGP) Teekay Tankers, LP (NYSE: TNK) Teekay Offshore, LP (NYSE: TOO)

Publicaly traded DaughterCos

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What What co could g go wro wrong ng?

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Teekay offshore, LP

NYSE: TOO, October 2014 – June 2017

• 2.00

3.00 8.00 13.00 18.00 23.00 28.00 33.00

Teekay Offshore Partners L.P. (NYSE:TOO) - Share

• 94%

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Amo Among ng t the T he Teekay en- eekay en--es t es today, ay, we think Teekay Offshore LP (TO TOO) represents the low lowest t risk, highest return opportunity

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Overview of Teekay Offshore

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Teekay Offshore, lp

“Floating Pipeline”

² $1.1B Market Cap ² $4.6B EV ² 26% public float ² Brookfield Business Partners

subsidiary as of Sept 30, 2017

² $2.48/share JDP average price

World-class marine infrastructure asset porjolio

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Unique assets

² Niche infrastructure assets originally owned by oil companies ² Mission-critical components to offshore drilling ² TOOs fleet further specialized in North Sea, North Canada and Brazil

Not to be confused with commodi-zed oil tankers, container ships, dry bulk carriers, etc.

Vessel Descriptions Shuttle tankers: Specialized ship designed to transport crude oil and condensates from offshore oil field installations to onshore terminals and refineries. Equipped with sophisticated loading systems and dynamic positioning systems that allow the vessels to load cargo safely and reliably in harsh weather conditions. Originally developed in the North Sea as an alternative to pipelines. FPSO: Floating offshore production facilities that store processed crude. Typically used as production facilities to develop marginal oil fields or deep water areas remote from existing pipeline infrastructure. FSO: Floating storage for oil fields that have no storage facilities or that require supplemental storage.

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Predictable cash flow

No direct commodity exposure

² Long-term contracts with world’s most prominent oil companies ² Operationally-driven pricing backed by the credit quality of lessee ² Contract terms protect against oil prices and cancelation risk ² Economically unrealistic to close most offshore wells keeps projects online

throughout oil cycles

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Protected cash flow

Vessel-level finance terms bind all counterpar-es TOO’s historical troubles stemmed from excessive non-secured, cash flow-based debt

² Shipping-bank lending terms explicitly protect against cancellations

² Contract termination = NPV of contract cash flows ² Broader industry eco-system implicitly aligned through validity of contacts

between E&P, banks, operators, suppliers, etc.

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Wide moat

² High barriers to entry

² Largest oil companies only work with a handful of

best in class operators

² Global footprint with focus on harshest

environments

TOO eats first Uniquely posi-oned to win profitable contracts even during periods of excess vessel inventory

² Scale and relationships ensure availability of specialized ship yard capacity ² Most stable capital base among peer group ² Capital intensive

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Why TOO Became Distressed

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So, how do you tank a great business’s stock?

• 1. Misaligned incen-ves
• 2. Poor capital alloca-on
• 3. Bad -ming

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Greed is not always good

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#1 Misaligned incentives

Teekay Corpora-on received three different cash streams from TOO:

1.

Dividends from stock ownership

2.

Management fees for managing the fleet

3.

Incentive Distribution Rights (IDRs)

² IDRs are management fees calculated as a percentage of dividends

paid to shareholders

² IDR structures can easily be abused ² Generally misunderstood by yield-seeking retail investors

ID IDRs ofe

• fen va

value lued d at t 20x 20x to to 30x 30x annua ual l incom

• me

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A bit “too” aggressive

Higher the distribu-on, the less you keep

$0 – $0.40 $0.40 - $0.44 $0.44 – $0.53 $0.53 + 25% 25% Fee 50% 50% Fee 15% 15% Fee 2% 2% Fee

IDRs paid to Teekay Parent from TOO dividends

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3% 5% 8% 10% 15% 19% 22% 22% 21% 3% 3% 3% 2% 2% 3% 3% 3% 3% 0% 5% 10% 15% 20% 25% 2007 2008 2009 2010 2011 2012 2013 2014 2015 TOO Distribution as % of Sales S&P Dividend as % of Sales

Grow the dividend at All Costs

7x

• Div. cut

in 2016

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Yield before the business

2007 … 2016 Total EBITDA Less Capex ($M ) 130 … 344 2,302 Interest and Distributions ($M ) (157) … (498) (3,121) Deficit ($M) (27) … (155) (819)

Ever-increasing dividends created a deficit

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#2 Poor Capital Allocation

$3.5Bn $120M

$42 $0 $0 $0 $78 $918 $68 $945 $974 $600 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Historical Capex Spending

2007 – 2011 Significantly underinvested in fleet to fund dividend ramp 2012 – 2016 Over-invested in fleet during

• il boom, con-nued to grow

dividend Result Became dependent on selling stock and high risk debt to fund growth commitments

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Betting the farm

2007 … 2016 Total EBITDA Less Capex ($M ) 130 … 344 2,302 Interest and Distributions ($M ) (157) … (498) (3,121) Deficit ($M) (27) … (155) (819) 2007 … 2017 % Chg Leverage Ratio 4.3x … 5.8x 34% % Non - Secured Debt

• …

40%

• High risk debt leveraged TOO directly to oil

prices

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#3 bad timing

And just as boom--me spending ramped up: Oil collapsed..

170.00 270.00 370.00 470.00 570.00 670.00 770.00 870.00 970.00

S&P GSCI Brent Crude Index (^SPGSBR) - Index

• 72%

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Situation Became Unmanageable

$587 $5,079 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 2016 EBITDA Capital Obligations ($M)

TOO’s leverage ballooned drama-cally

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Nail in the Coffin

Amt Issue Issued ($M) Coupon Convertible? W arrants April 2013 Preferred Offering $150 7.3% No No April 2015 Preferred Offering $125 8.5% No No July 2015 Preferred Offering $250 8.6% Yes No June 2016 Preferred Offering $100 10.5% Yes 6.7M ATM "Continuous" Equity Offering $200-$300

TOO was forced to issue a series of dilu-ve securi-es

Stock collapsed, equity funding failed

No way to fund obligations = investor panic

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Institutionally Constrained

Distress triggered a 40%+ decline in ins-tu-onal

• wnership*

Majority of TOO’s tradi-onal ownership base was forced to sell

² Dividend cut to 1 cent ² Fear of unknown dilution and restructuring ² Stock liquidity crunch ² Highly distressed sector

*JDP es-mate based on 13F filers

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White Knight Recapitaliza-on

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Brookfield to the rescue

White knight steps in Brookfield Business Partners announces capital injec-on and board control on July 27, 2017, deal closed September 25th

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Brookfield Asset Management

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Transformative PIPE Transaction

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What does this mean for TOO shareholders?

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Post-brookfield cash flow

ü No more funding gap ü Replenishes fleet assets ü Free cash flow boosted by ability to fund fleet delivery

Run-Rate Deal Post ($000s) Standalone Additions Brookfield Growth Revenues $1,071 $225 $1,296 21.0% Adjusted EBITDA $588 $92 $680 15.6% Levered FCF $168 $107 $275 63.7% Capex Funding Gap

• $300

$300 $0

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Post-brookfield Capitalization

ü Leverage materially improves ü Swapped high cost preferred debt for stock ü Removes intense dependency on capital markets

Capitalization 2017 Stand - Deal Pro ($000s) Alone Dilution Forma Net Debt + Prefs $4,371 ($725) $3,646 Shares 156 254 410 Market Cap @ $2.50 $390 $1,025 Enterprise Value $4,761 $4,671 Leverage Ratio 7.4x 5.4x

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Intangibles of Brookfield Deal

1.

World-class capital allocators now control the board

2.

Financial model shift to grower/compounder vs. leveraged dividend payer

3.

Access to very low cost debt

4.

Industry-leading Teekay management remains in place

5.

Revenue synergies with Brookfield’s massive energy ecosystem

Beginning of a new Brookfield “plajorm” with access to billions in capital to pursue

• pportunis-c M&A

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What’s It Worth?

5

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Valuation

EBITDA Multiple 8.0x 9.0x 10.0x 11.0x 12.0x EBITDA $680 $680 $680 $680 $680 Implied share price $4.64 $6.08 $7.52 $8.96 $10.40 Total gross return 186% 243% 301% 358% 416% Total Shares (millions)* 472 472 472 472 472 Net Debt 3,250 $ 3,250 $ 3,250 $ 3,250 $ 3,250 $ *Assumes full warrant and preferred conversion Hypothedical 12-month Outlook Full Year 2018E

Reasonable multiple of conservative 2018E EBITDA suggests a valuation range of $6 - $9 per share

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$0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 KNOP (10x EBITDA) MLP Peers (13x EBITDA) Brookfield Peers (16x EBITDA) Enterprise Value ($Bn)

Relatively speaking

+200% +370% +550%

Implied TOO Stock Price

Significant upside based on closest peer and industry comps

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Summary

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So why does 1 + 1 = TOO?

² Realignment of interest between management and shareholders sets up

long-term compounder potential

² Current price lets you invest at Brookfield’s deal terms of $2.50 per share ² 300% upside with misunderstood margin of safety ² World-class institutional partner de-risks the capital structure and enhances

growth

² No longer dependent on oil-leveraged capital markets

Summary

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“It is not the ship so much as the skillful sailing that assures the prosperous voyage”

• George William Cur-s

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JDP Team

Jeremy Deal, Founder, Portfolio Manager

Business Experience

² Private equity ² Co-founder Secure Wireless Inc., sold to Nortek (NASDAQ: NTK) ² Co-founder Energy Eye Inc., sold to Somfy SA (EPA:SO) ² Honeywell International (NYSE: HON), Home Controls Division

JDP Offshore, June 2017

Seth Lowry, Senior Analyst

Business Experience

² Tech Coast Angels, Analyst ² Citigroup, Equity Research, Transportation ² Merrill Lynch, Investment Banking, Energy and Power ² Merrill Lynch, Global Securities Research

Mark Chapman, Director, JDP Offshore Ltd.

Business Experience

² Azur Consulting, Partner ² Director, Aquamarine Fund Zurich ² Deloitte & Touche, Managing Partner, BVI ² Deloitte & Touche, Senior Manager, Cayman Islands

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