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Global Credit Research - 05 Jan 2011
Approximately $2.2 billion of debt affected
New York, January 05, 2011 -- Moody's Investors Service confirmed Sabine Pass LNG, LP's (Sabine
Pass or Project) B3 rating and changed the outlook to negative.
This concludes the review for possible downgrade placed on November 23,
Sabine Pass is 91% indirectly owned by Cheniere Energy Inc (Cheniere,
not rated) and Sabine Pass's credit quality remains closely linked to
Cheniere since Sabine Pass represents most of Cheniere's consolidated
cash flows and operating assets for the foreseeable future and has extensive
The rating action reflects elimination of the put options in Cheniere's
$255 million secured term loan. The removal of the put options
provides Cheniere near term relief since the $255 million term
loan could have been put to Cheniere as early as August 2011. The
$255 million term loan's maturity is unchanged and is due
in 2018. The lenders to the $255 million secured term loan
have also agreed to allow for the early prepayment of the $255
million loan, allow Cheniere to sell its common units in Cheniere
Energy Partners (CQP) and prepay the $255 million loan with the
CQP share sale proceeds, release restrictions on prepayments of
other indebtedness at Cheniere as certain conditions are met and several
other changes. In exchange, the 'non-convertible'
lenders to the $255 term loan received 10.125 million shares
in Cheniere and now benefit from a direct cross default to Cheniere and
Sabine Pass's other debt facilities.
The negative outlook reflects approximately $503 million of debt
maturing at Cheniere in 2012 consisting of the $298 million secured
term loan due May 2012 and $205 million of convertible senior unsecured
notes due August 2012. Afterwards, Sabine Pass has $550
million in senior secured notes due in November 2013 followed by $1.67
billion of senior secured notes due in November 2016. Moody's understands
that Cheniere has been in dialogue with the lenders to Cheniere's 2012
debt facilities and those discussions are continuing. Moody's continues
to view the upcoming debt maturities as a substantial challenge to Cheniere
especially given Cheniere's negative free cash flow of around $45-55
million on an annualized basis, Cheniere's unrestricted cash balance
of around $82 million on a consolidated basis as of September 30,
2010, Cheniere's extremely high consolidated leverage and multiple
group of creditors with differing security positions and maturities.
While Cheniere's debt obligations are not recourse to Sabine Pass,
the close linkage between Cheniere and Sabine serves as a strong incentive
to bring Sabine Pass into a possible bankruptcy of Cheniere in order for
Cheniere to better control its estate and enable a comprehensive debt
Sabine Pass's rating remains supported by its long term contract with
subsidiaries of Chevron and Total SA for approximately 50% of Sabine
Pass's capacity. Based solely on these stable cash flows,
Sabine Pass's interest coverage ratio was around 1.25 times for
the last twelve months ended September 2010 according to Moody's calculations.
These contracted cash flows support a likely above average recovery in
a potential default though Moody's does not view these contracted cash
flows sufficient to result in full recovery of the senior secured bonds.
Moody's views Cheniere's plan to develop a natural gas liquefaction facility
next to the existing Sabine Pass LNG regasification and storage facilities
as not having credit implications at this time given the large execution
risk associated with such a project and long lead time before potential
operation. The liquefaction facility requires FERC approval that
could occur by 2012 and commercial operation of the potential liquefaction
plant is not expected until 2015. If the liquefaction project receives
all necessary approvals and advances to construction, the liquefaction
plant could have positive or negative implications to Sabine depending
upon the liquefaction plant's final contractual arrangements, financing
structure and impact to Cheniere's consolidated credit profile.
During the outlook period, Moody's will consider Cheniere and Sabine's
progress on resolving the 2012 and 2013 debt maturities.
The rating could stabilize or improve if Cheniere and Sabine Pass are
able to comprehensively address its upcoming debt maturities or if Cheniere
substantially improved its credit profile on a standalone basis.
The rating could be revised downward if Cheniere's credit quality deteriorates
further, if Cheniere or Sabine Pass is not able to address any of
its upcoming debt maturities, if the Project experiences prolonged
operating issues or if Sabine Pass's financial metrics weaken.
Sabine Pass LNG L.P. was formed in 2004 to construct,
own and operate a liquefied natural gas (LNG) receiving terminal with
an aggregate regasification capacity of 4 Bcf/d. Sabine has signed
three 20-year Terminal Use Agreements (TUA's) for 100% of
its regasification capacity on a "take or pay" basis. Sabine is
90.6%, indirectly-owned by Cheniere Energy,
Inc (not rated).
The last rating action on Sabine Pass occurred on November 23, 2010,
when the rating on Project's rating was downgraded to B3.
The principal methodology used in this rating was Generic Project Finance
methodology published in December 2010.
Clifford J Kim
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service
Chee Mee Hu
MD - Project Finance
Project & Infrastructure Finance
Moody's Investors Service
Moody's Investors Service
Moody's confirms Sabine Pass's B3 rating and removes review for possible downgrade. Outlook is negative.
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