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Rating Action:

Moody's affirms the Baa3 rating at Sabine Pass Liquefaction and the Ba2 ratings at affiliate Cheniere Energy Partners

05 May 2020

Approximately $18 billion of debt securities affected

New York, May 05, 2020 -- Moody's Investors Service today affirmed the Baa3 rating assigned to Sabine Pass Liquefaction LLC's (SPL) senior secured bonds as well as the Ba2 Corporate Family Rating (CFR), Ba2-PD probability of default rating, and Ba2 rating assigned to Cheniere Energy Partners, L.P's (CQP) senior unsecured notes. The outlooks for SPL and CQP are stable.

Separately, Moody's assigned a Baa3 rating to SPL's proposed offering of senior secured notes. Proceeds from the offering will be used to redeem all or a portion of SPL's outstanding 5.625% senior secured notes due February 2021.

RATINGS RATIONALE

SPL

SPL's investment grade credit profile is supported by long term contracts with financially sound offtakers, whose weighted average credit quality approximates A3, that provide SPL with significant recurring fixed revenue and cash flow. SPL's Baa3 rating recognizes that commercial operation has been achieved on Trains 1-5 commencing predictable cash flow generation but remains constrained by its significant debt load, which stands at $13.65 billion as of March 31, 2020. Construction activities remain ongoing at Train 6 with commercial operations currently anticipated in the first half of 2023.

Today's rating action further acknowledges that a combination of liquified natural gas supply additions over the past several years along with warmer winters and strict COVID-19 containment measures have exerted downward pressure on global oil and natural gas prices. As a result, SPL has experienced an increase in the number of LNG cargoes for which customers will not take cargoes. Importantly, however, these customers continue to be legally obligated to pay the related fixed fees associated with these cancelled cargoes, underpinning SPL's investment grade credit profile.

Contracted fixed payments for Trains 1-5 total approximately $2.9 billion per year and provide for annual recurring EBITDA in excess of $1.8 billion. SPL also receives variable LNG production based payments equal to 115% of month-end Henry Hub future prices when liquefied natural gas is delivered. The variable payment is structured primarily to cover SPL's cost of sourcing the natural gas feedstock and natural gas consumption during operation. Projected key financial metrics through 2022, which primarily focus on the issuer's ability to generate the fixed component of its revenue stream, are expected to result in a debt-to-EBITDA ratio that is in a range of 6-7 times and project cash from operations to adjusted debt that is in excess of 8%.

Counterparties and guarantors include BG Energy Holdings LTD (BG), an indirect wholly-owned subsidiary of Royal Dutch Shell Plc (Aa2, negative), Naturgy Energy Group SA (Baa2, stable), Korea Gas Corporation (Aa2, stable), GAIL (India) Ltd (Baa2, negative), Centrica Plc (Centrica: Baa2, stable), and Total S.A. (Total: Aa3, negative) under separate 20-year off-take contracts.

SPL reached Final Investment Decision on Train 6 and issued notice to proceed with construction in May 2019. The forecasted all-in construction cost is approximately $3.2 billion. Similar to construction for Trains 1-5, Train 6 is being constructed under a fixed price engineering, procurement, and construction contract (EPC Contract) with Bechtel Oil, Gas, & Chemicals, Inc. (Bechtel). The total contract price of the Train 6 EPC Contract is $2.5 billion, of which $1.3 billion was incurred through March 31, 2020. Also, at March 31st, approximately 54% of the entire project and 15% of construction for Train 6 was complete. To finance Train 6, CQP raised $1.5 billion of debt in 2019, proceeds from which are being contributed to SPL to fund Train 6, a credit positive for SPL lenders who will benefit from incremental unlevered contracted cash flows. The remainder of the funding requirements is expected to be equity contributed by CQP and reinvested cash flow from SPL Trains 1-5.

SPL Train 6's capacity has been contracted with Petronas LNG Ltd (Petronas:Baa1, stable) and Vitol Inc. (Vitol: not rated). These two contracts account for 40% of the nameplate capacity for Train 6. We expect, however, a new take-or-pay or an existing take-or-pay contract with a non-affiliated third party to be assigned to SPL. Importantly, a marketing affiliate of SPL is party to two such contractual arrangements that could be used for this purpose. Our estimated fixed contracted capacity revenue for Train 6 and the entire SPL complex in 2024 are approximately $400 million and $3.3 billion, respectively.

CQP

CQP Ba2 CFR is driven by the predictability and recurring nature of anticipated long-dated cash flow from its wholly-owned operating subsidiaries: Cheniere Creole Trail Pipeline, L.P. (CTPL: not rated) and Sabine Pass LNG, L.P. (SPLNG: not rated) and distributions from SPL. Cash flow and distributions from these operating subsidiaries are CQP's primary source of cash flow and debt repayment. These positives are balanced by CQP's structurally subordinated position to SPL's leveraged capital structure, significant ongoing distribution requirements, and a highly leveraged capital structure that is forecasted to remain in excess of 7 times on a consolidated debt to EBITDA basis through at least 2022.

At March 31, 2020, SPL and CQP's liquidity profile remains strong owing to internal unrestricted cash of $1.7 billion at CQP and a $109 million of restricted cash at SPL both of which are augmented by a $1.2 billion SPL working capital facility that was recently extended to March 19, 2025 (of which $786 million was available) and $750 million CQP revolving credit facility that expires in May 29, 2024 and is fully available.

RATING OUTLOOK

SPL's stable outlook incorporates an assumption that plant operations remain strong enabling the project to provide consistent and meaningful cash flow that comfortably support SPL's debt service requirements, equity capital requirements associated with Train 6 construction, and CQP's current distribution policy.

CQP's stable outlook reflects the heavy reliance on distributions from SPL along with consistent cash flow from unrated subsidiaries, CTPL and SPLNG, which together will enable CQP meets its funding requirements including Train 6 construction costs and ongoing distributions to its owners.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

SPL's rating could be upgraded if there is a significant and sustained reduction in SPL's outstanding debt or improvement in cash flow generation such that its ratio of project cash from operations to debt exceeds 15% on an ongoing basis.

SPL's rating could be downgraded or the outlook revised to negative should it encounter major operating problems or not generate the expected level of cash flow to fund remaining construction costs or operating costs.

Given CQP's level of reliance on SPL cash flow, a rating change at SPL would likely trigger a similar change at CQP.

PROFILES

CQP is a publicly traded master limited partnership owned by Cheniere Energy Inc., The Blackstone Group L.P. and public unitholders. CQP owns and operates, CTPL, a 94 mile long 42 inch diameter pipeline that provides natural gas supply transportation to SPL; SPLNG, a regasification terminal that has been operating since 2008; and SPL, a six liquefaction train development with trains in various stages of construction and operation and with long-term contractual arrangements with credit worthy global energy companies that collectively provide $3.3 billion in annual capacity revenue.

The principal methodology used in rating Cheniere Energy Partners, L.P. was Midstream Energy published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147839. The principal methodology used in rating Sabine Pass Liquefaction LLC was Generic Project Finance Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1194215. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Scott Solomon
VP - Senior Credit Officer
Project Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

A.J. Sabatelle
Associate Managing Director
Project Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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