Standard & Poor’s Ratings Services (S&P) on Tuesday gave the Sabine Pass facility to export liquefied natural gas (LNG) a strong credit rating and stable outlook, citing its ties to investment-grade companies.
S&P analysts noted some constraints on the project due to the project parent company, Cheniere Energy Partners LP’s marginal credit rating.
Cheniere’s Sabine Pass Liquefaction LLC was given a “BB+” rating by S&P on a $3.6 billion term loan due in 2019. At the same time the Sabine project dropped a term loan “B” issue, which is based on its assessment of the project’s financing, counterparty dependencies and construction risk.
Sabine’s term loan A was viewed as having good recovery if there was a default. In that case, S&P said the project lenders should recover 50-70% of their investment.
S&P credit analyst Mark Habib said the rating reflects the expectation that cash flows from the 20-year sale and purchase agreements are guaranteed by investment-grade parents of BG Gulf Coast LNG LLC and Gas Natural Aprovisionamientos SDG SA, as well as performance standards that Sabine should be able to meet.
Among the strengths of the project as outlined by S&P are a strong (two times) debt service coverage ratio, use of ConocoPhillips liquefaction technology and a date-certain, fixed-price engineering, procurement and construction (EPC) contract with Bechtel Oil Gas & Chemicals Inc.
“Bechtel has contractual incentives to achieve scheduled completion and the construction budget has adequate contingency,” said Habib. He noted that detailed construction design is now close to 20% complete. “We believe operation and maintenance risk is manageable at the rating level.”
Sabine should be able to get whatever gas supplies it needs from “the robust U.S. natural gas market” and deliver it via extensive pipeline connectivity all across its Creole Trail Pipeline that is affiliated with Cheniere and which has announced plans for modifications to accommodate the liquefaction export project (see Daily GPI, May 14).
There is still the concern if Cheniere becomes “credit distressed.” The facility’s project structure should provide the export facility “insulation” from the parent company’s credit quality, Habib said. It’s unlikely the credit rating would be raised until after the construction is completed. “We could lower the rating if major construction problems result.”
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