Rating Action: Moody's affirms Sabine Pass Liquefaction's upsized $1.5 billion senior secured notes. Outlook remains stable.

Rating Action: Moody's affirms Sabine Pass Liquefaction's upsized $1.5 billion senior secured notes. Outlook remains stable.

Global Credit Research - 29 Jan 2013
Approximately $6 billion of debt affected

New York, January 29, 2013 -- Moody's Investors Service affirmed Sabine Pass Liquefaction's (SPL) Ba3 rating on its upsized $1.5 billion of senior secured notes due 2021. The senior secured note offering was previously sized at $1 billion. Moody's also affirmed SPL's Ba3 on its $3.6 billion first lien bank term loan due 2019 and Sabine Pass LNG's (SPLNG) B1 rating on its $2.1 billion in senior secured notes. The rating outlooks for SPL and SPLNG are stable.

http://www.moodys.com/credit-ratings/Sabine-Pass-Liquefaction-LLC-credit-rating-823099178

The $500 million incremental increase will effectively displace SPL's bank commitment by an additional $430 million while funding a portion of increased interest during construction and transaction costs totaling approximately $97 million compared to Moody's expectation in our January 22, 2013 press release. The increased reliance on Train 1 cash flows is also expected to fund the higher incremental transaction and interest costs during construction.

Ratings Rationale

The rating affirmation incorporates our view that SPL's main credit drivers remain substantially unchanged. Moody's understands that SPL's bond covenants will contain some minor improvements though we view the overall bond covenants continue to be weaker than the bank loan. Additionally, the net debt increase totaling $176 million will reduce expected operating period financial metrics though these metrics are still expected to be in the 'Baa' rating category. Furthermore, SPL greater reliance on Train 1 cash flow during the construction period moderately increases construction period risk albeit not enough to affect SPL's rating at this time.

The main credit factors supporting SPL's Ba3 senior secured rating are its long term contract with investment grade off-takers, likely 'Baa' metrics during operations, and an EPC contract with Bechtel. Sizeable third party equity investment of $1.89 billion and utilization of existing infrastructure are also considered positive. Key credit risks include considerable construction period risks, uncertainties on gas feedstock, and major debt maturities from 2016 through 2021. Other key considerations include uncertainties regarding the financing and construction of Trains 3 & 4, the lack of up-front funding of the SPL debt service reserve, and CQP's lack of ownership of the Creole Trail Pipeline (CTPL).

The SPLNG's B1 rating reflects long term contracts with highly rated third parties for approximately 50% of revenues, acceptable operational performance since 2009, and some project finance protections. Additional strengths include the October 2012 refinancing of SPLNG's November 2013 debt maturity resulting in a net $130 million debt reduction and an affiliate contract with SPL, which should provide greater cash flow certainty once SPL achieves operations. The B1 rating also considers SPLNG's high standalone leverage and likely continuation of low financial metrics until SPL reaches commercial operations. Over the next several years, we expect SPLNG will achieve an interest coverage ratio of around 1.4 to 1.5 times and FFO/Debt of around 3% to 4%.

SPL and SPLNG's stable rating outlooks reflect the expectation that SPL's construction will be completed on time and on budget and that SPL and SPLNG will meet their performance obligations under their respective off-take contracts.

SPLNG and SPL's ratings are unlikely to be positively affected in the near term given uncertainties on the construction and financing plans for SPL Trains 3 & 4. Over the longer term, positive trends that could lead to an upgrade include SPL's successful construction completion, demonstrated good operational performance at SPL and SPLNG and the two borrowers' ability to address their upcoming debt maturities from 2016 to 2021.

SPLNG and SPL ratings could be downgraded if SPL incurs significant construction cost overruns or delays, if SPLNG incurs operating problems, or if Trains 3 & 4 add further material financial and construction risk. SPLNG and SPL's ratings could face negative rating action if SPL's fuel sourcing strategy introduces significant imperfections, if equity contributions are not made as expected or if any of SPL's governmental authorizations are revoked or limited.

Sabine Pass Liquefaction LLC (SPL) is expected to build and operate a nameplate 9 million ton per annum (mtpa) liquefied natural gas (LNG) project located in Cameron Parish, Louisiana next to the existing Sabine Pass LNG L.P.'s regasification plant (SPLNG). SPL's output is contracted with BG Group and Gas Natural SA under 20 year off-take contracts. SPLNG owns and operates a liquefied natural gas receiving terminal with an aggregate regasification capacity of four Bcf/d and five LNG storage tanks. SPLNG has third party 20-year contracts for half of the capacity. SPL expects to utilize SPLNG's existing infrastructure including storage tanks and marine terminal under an affiliate contract. Cheniere Energy Partners (CQP) owns SPL and SPLNG. CQP is owned by private equity funds managed by Blackstone, Cheniere Energy, and public investors.

The principal methodology used in this rating was Generic Project Finance methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

http://www.moodys.com/credit-ratings/Sabine-Pass-Liquefaction-LLC-credit-rating-823099178