TEXT-S&P rates Cheniere Energy Partners L.P.
Overview -- U.S. midstream energy master limited partnership Cheniere Energy Partners L.P. (CQP) has cancelled its $750 million term loan B issuance and has also delayed plans to purchase the Creole Trail Pipeline from parent Cheniere Energy Inc. (CEI). -- CEI has repaid its convertible senior unsecured notes and is debt free. -- We are assigning a 'B+' corporate credit rating to CQP. -- At the same time we are withdrawing our preliminary 'B+' rating on the term loan B issue at CQP. -- The stable outlook reflects our assessment that CQP's cash flows will remain weak for the next several years until the Sabine Pass Liquefaction LLC (SPL; BB+/Stable) project begins to distribute cash. Rating Action On Aug. 28, 2012, Standard & Poor's Ratings Services assigned its 'B+' corporate credit rating to Cheniere Energy Partners, a master limited partnership (MLP) in the midstream energy sector. At the same time, we withdrew our 'B+' preliminary term loan B rating on CQP after it cancelled the issuance. The outlook is stable. Rationale We base our rating on CQP on a consolidated approach to CQP and its general partner parent CEI. The rating reflects a "fair" business risk profile and an "aggressive" financial risk profile under our criteria. The fair business risk profile reflects our expectation of stable cash flows from CQP's Sabine Pass LNG L.P. (SPLNG; BB+/Stable/--) regasification terminal, SPL's more substantial future cash flows once completed, and our expectation that CQP may seek to grow through drop-downs from its parent and additional project development in the meantime. Both of CQP's subsidiary liquefied natural gas (LNG) projects rely primarily on long-term, take-or-pay capacity-based fee contracts with creditworthy counterparties that should provide predictable distributions to CQP assuming SPL's construction is completed on time and within budget. The partnership's "aggressive" financial profile reflects CQP and general partner parent CEI's aggressive financial and expansion policies. We expect the entities could lever up in the future to pursue other growth projects and to drop-down the Creole Trail Pipeline at a later date. Given the partnership's weak cash flow until 2017 when SPL comes on line and begins to distribute cash to CQP, we believe any additional leverage would result in debt to EBITDA ratios in line with the 'B+' rating. (For more information on SPL please see our research update published today.) Pro forma for equity financings to fund development of SPL's LNG export facility and five years of accretion, CQP will be owned 53% by CEI (including its 2% general partner interest), 43% by Blackstone CQP Investment, and 4% by the public. SPL and SPLNG are bankruptcy-remote project finance special-purpose entities that CQP wholly owns. Under our project finance conventions, we limit their ratings to three notches above our ratings on CQP. Liquidity Liquidity is adequate in our assessment. CQP currently has no outstanding debt and minimal required operating expenses with no operating assets. Sources of funds are adequate, with funds from operations of about $50 million, almost entirely coming from SPLNG distributions. These calculations do not reflect any further drop-downs from CEI or an increase in leverage at CQP. We would expect any asset dropdowns or new development costs would be financed in part or in whole through debt issuance; this is similar to a project financing where issuance proceeds, cash on hand, and cash flows will fund development until incremental cash from new projects begin to flow. Outlook The stable outlook reflects our expectation that CQP and CEI's cash flows will likely remain weak for the next several years, but sufficient to meet their modest obligations until the SPL project begins to distribute cash and financial measures strengthen. We could raise our ratings on CQP over time if construction at SPL is completed, and CQP's financial strength improves as a result. However, we think a ratings upgrade is unlikely in the near term, given the aggressive financial and growth policies that management has displayed in the past. We could lower our ratings on CQP if the SPL project encounters construction problems that could reduce or delay distributions. We could also lower the ratings if CQP or CEI significantly increase leverage or aggressively pursue growth opportunities that raise our long-term forecast for CQP's debt to EBITDA above 5x. Related Criteria And Research Key Credit Factors: Criteria For Rating The Global Midstream Energy Industry, April 18, 2012 Ratings List New Rating Cheniere Energy Partners L.P. Corporate credit rating B+/Stable/-- To From Rating Withdrawn. Term Loan B N.R. B+(prelim) Recovery Rating N.R. 3(prelim)
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