TEXT-S&P rates Cheniere Energy Partners L.P.

Tue Aug 28, 2012 11:29am EDT

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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