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Rating Action:

Moody's rates Cheniere Energy's secured notes Ba3

14 Sep 2020

New York, September 14, 2020 -- Moody's Investors Service ("Moody's") assigned first time ratings to Cheniere Energy, Inc. (NYSE American: "LNG") including a Ba3 Corporate Family Rating (CFR), a Ba3-PD Probability of Default Rating (PDR) and a Ba3 rating to its proposed issuance of senior secured notes. Moody's also assigned a Speculative Grade Liquidity Rating of SGL-3, indicating adequate liquidity. The outlook is stable.

Cheniere intends to use the proceeds of the proposed notes issue to prepay a portion of its $2.7 billion secured term loan. The senior secured notes provide for a release of collateral should the secured term loan be retired or refinanced on an unsecured basis, in which case its Ba3 rating would be unaffected.

"While debt at Cheniere Energy is structurally subordinated to substantial amounts of secured project level debt and intermediate holding company debt, debt service is well supported by cash flow generated under long-term, take-or-pay, largely investment grade contracts across seven fully operational natural gas liquefaction (LNG) trains," commented Andrew Brooks, Moody's Vice President. "Moreover, as construction is finalized on its remaining two LNG liquefaction trains, positive free cash flow will ramp up, generating incremental funding for debt reduction in the absence of additional capital spending."

Assignments:

..Issuer: Cheniere Energy, Inc.

.... Probability of Default Rating, Assigned Ba3-PD

.... Speculative Grade Liquidity Rating, Assigned SGL-3

.... Corporate Family Rating, Assigned Ba3

....Senior Secured Notes, Assigned Ba3 (LGD3)

Outlook Actions:

..Issuer: Cheniere Energy, Inc.

....Outlook, Assigned Stable

RATINGS RATIONALE

Through its ownership and operation of two US-based LNG export facilities, Sabine Pass Liquefaction LLC (SPL, Baa3 stable) and Cheniere Corpus Christi Holdings, LLC (CCH, Baa3 stable), Cheniere Energy has emerged as one of the world's largest LNG exporters, having shipped over 1,175 LNG cargoes since its initial shipments in 2016. Approximately 85% of its liquefaction capacity is contracted under take-or-pay contracts whose remaining average contract life approximates 18 years. However, by largely debt-financing the construction of the seven operating liquefaction trains across the two project sites (with two more under construction), Cheniere has accumulated almost $24 billion of secured project level debt, in addition to $4.1 billion of intermediate holding company debt at Cheniere Energy Partners, L.P. (CQP, Ba2 stable), all of which is senior to the $3.4 billion debt outstanding at Cheniere Energy. On a fully consolidated basis, Cheniere's debt/EBITDA stands at a very high 8x.

Cheniere Energy's rating further acknowledges that a combination of global LNG supply additions over the past several years along with warmer winters and strict COVID-19 containment measures have exerted downward pressure on global oil, natural gas and LNG prices. As a result, Cheniere has experienced an increase in customer LNG cargo cancellations in 2020 to date. However, these customers continue to be contractually obligated to pay the related fixed fees associated with these cancelled cargoes.

SPL generates significant recurring fixed revenue and cash flow under long term contracts with financially sound contract counterparties, whose weighted average credit quality approximates A3. Contracted fixed payments for its Trains 1-5 approximate $2.9 billion per year and provide for annual recurring EBITDA in excess of $1.8 billion. Nameplate capacity across the five operating trains aggregates 22.5 million tonnes per annum (MTPA), the equivalent of about 3.5 billion cubic feet per day (Bcfd) of natural gas. SPL also receives variable LNG production based payments equal to 115% of month-end Henry Hub natural gas prices when LNG is delivered. Projected key financial metrics through 2022, which primarily focus on SPL's ability to generate the fixed component of its revenue stream, should result in debt-to-EBITDA in a range of 6x-7x. Construction activities remain ongoing at its Train-6 which is approximately two-thirds completed, with commercial operations anticipated to commence in the second half of 2022. SPL project debt aggregates $13.65 billion. SPL together with contract-based import capacity and a natural gas pipeline is held by master limited partnership CQP, which is owned approximately 50% by Cheniere Energy, 42% by funds managed by The Blackstone Group Inc. (Blackstone PE), and 8% by the public. Blackstone PE has agreed to sell its investment in CQP to Blackstone Infrastructure Partners and Brookfield Infrastructure Fund IV in a transaction scheduled to close in 2020's third quarter (see Moody's Issuer Comment for Blackstone CQP Holdco LP on 8 September 2020).

CCH currently operates two 4.5 MTPA LNG liquefaction trains, with a third train under construction that is approximately 91% complete as of June 30. Train-3 substantial completion is anticipated in the first half of 2021. Collectively, the facility operates under nine offtake contracts, providing annual recurring fixed fees of approximately $1.8 billion over a multi-year period; the current average weighted credit profile of CCH's nine contractual customers is in the mid-Baa rating range. Contract structure is comparable to that of SPL, providing for fixed reservation fees on a take-or-pay basis in addition to Henry Hub indexed variable payments for delivered LNG. Project debt should remain approximately $10 billion over the near-term.

The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil and natural gas prices have created an unprecedented credit shock across a range of sectors and regions. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Cheniere Energy's rating, in part, reflects the impact on it of its exposure to globally weak natural gas prices, which leaves it vulnerable to shifts in market demand and sentiment in these unprecedented operating conditions.

Moody's regards Cheniere Energy as having adequate liquidity as evidenced by its SGL-3 Speculative Grade Liquidity Rating. As of June 30, Cheniere Energy had balance sheet cash of $700 million (in addition to $1.34 billion cash at CQP) and a $1.25 billion secured revolving credit facility under which $375 million of borrowings was outstanding in addition to $313 million of letters of credit. The revolver has a scheduled maturity date of December 2022. In June, Cheniere Energy closed a three-year delay-draw secured term loan, which was upsized to $2.7 billion in July, to refinance certain upcoming maturities, while SPL issued $2.0 billion in secured notes to refinance certain of its upcoming debt maturities. SPL's next upcoming maturity is its $1.0 billion of 6.25% notes due in 2022. With the pending completion of SPL's Train-6 and CCH's Train-3, Moody's expects a significant building of positive free cash flow to be available for debt reduction.

The proposed senior secured notes rank pari passu with Cheniere Energy's $2.7 billion secured term loan and $1.25 billion secured revolving credit facility. The proposed senior secured notes are rated Ba3, equivalent to Cheniere Energy's Ba3 CFR, and share an equivalent claim on assets as do the secured revolving credit facility and secured term loan. The senior secured notes provide for a release of collateral should the secured term loan be retired or refinanced on an unsecured basis and so long as other Cheniere Energy secured debt does not exceed $1.25 billion, in which case its Ba3 rating would be unaffected. However, while the senior secured notes will become unsecured obligations upon the release of collateral, the $1.25 billion revolving credit family will continue to remain a senior secured obligation of Cheniere Energy, leaving the notes junior to the revolver from a collateral and claim position. As such, the Ba3 rating on the notes is sensitive to the extent of utilization under the company's secured revolving credit. Should utilization of the revolver become a permanent component of the company's debt capital structure, the Ba3 unsecured rating could be lowered by a notch.

The outlook is stable reflecting the strength and tenor of the long-term LNG sales contracts that generate stable and predictable cash flow.

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

Ratings could be upgraded if consolidated debt/EBITDA declines towards 6.5x; rating upgrades at SPL, CCH and CQP could accelerate upgrade potential for Cheniere Energy. Failure to improve consolidated debt/EBITDA from 8x, a material disruption in LNG liquefaction operations, a deviation in LNG offtake contracting strategy that weakens cash flow certainty, or material share repurchases at the expense of debt reduction could prompt a ratings downgrade.

Cheniere Energy, Inc. is headquartered in Houston, Texas. The Sabine Pass liquefaction export terminal is located in Cameron Parish, Louisiana. The Corpus Christi liquefaction export terminal is located in Corpus Christi, Texas.

The principal methodology used in these ratings was Midstream Energy published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147839. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

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.3437130

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.

Andrew Brooks
VP - Senior Credit Officer
Corporate 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

Steven Wood
MD - Corporate Finance
Corporate 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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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