Fitch Ratings has assigned a 'BB-'/'RR4' rating to
The secured notes are secured by equity pledges in various subsidiaries and first priority security interests in substantially all other material assets of the issuer and its guarantor subsidiaries. Per Fitch's Corporates Recovery Ratings and Instrument Ratings Criteria, category 2 secured debt can be notched up to 'RR1'/'+2' from the Issuer Default Rating (IDR); however, the instrument ratings have been capped at 'RR4' due to Fitch's Country Specific Treatment of Recovery Rating Criteria. Fitch believes on a normalized run-rate basis most of the revenues will come from outside the
Net proceeds of the offering will be used to repurchase a portion of the 2025 notes and repay a portion of the outstanding revolver borrowings.
NFE's Long-Term IDR is 'BB-'. The Rating Outlook is Stable.
Key Rating Drivers
Increased Business Risk: The expansion into LNG production increases the business risk profile. LNG production is one of the more complex businesses in the midstream segment, and the first LNG unit will be located offshore in the
Cash Flow Stability: Other LNG producers, such as
Complex Capital Projects: The capex program has two FLNG units, each a 1.4 mtpa natural gas liquefaction unit, with one mounted on an offshore refurbished oil rig, and the other located onshore
Capital Allocation Plan: The annual capital spending was over
In a lower global LNG price environment, Fitch expects that management will manage capex spending and shareholder returns if there is a cash shortfall.
Operational and Financial Plan: Since 2021, NFE scaled the business through acquisitions and organic growth and has simplified the capital structure. It eliminated vessel level debt by selling some of its LNG vessels to a joint venture, Energos Infrastructure. NFE has sold its 20% ownership in the business in
Fitch calculated leverage in 2023 increased to over 5.5x as the overall terminal operating margins were lower than expected, operations of the first FLNG unit was delayed, and short-term LNG market sales were lower. A sizable short-term contract and commodity tailwinds will drive leverage down over the next two years, under Fitch's base case, to below 4.0x. Fitch will look for solid operations of the first FLNG unit, successful deployment of the following units, expansion operations in
Counterparty and Country Ceiling Exposure: NFE's IDR is not capped by a country ceiling, as its cash flows from the
Derivation Summary
NFE is similar to LNG producer
NFE's operational and geographic focus is similar to Cheniere Energy , a global LNG provider. NFE has operations in
Cheniere Energy is a master limited partnership with an LNG import-export facility and a
Fitch notes Sabine Pass' contracts are of much more substantial duration than any of its midstream peers, in addition to its primarily fee-based revenue. The contract profile is with investment-grade counterparties, in contrast to NFE has a portion of its counterparties based in non-investment countries. Additionally, Cheniere Energy's contracts are supported by a pass-through of fixed and variable costs of LNG to contractually obligated off-takers unlike NFE, which is exposed to changes in commodity price and offtake volumes.
The majority of NFE's subsidiaries do not have project level debt, while Cheniere's operating subsidiary, Sabine Pass, has substantial leverage, and in a combined and severe downside case of payment default by a large customer and weak merchant price forecast realizations, cash could be trapped.
Leverage for NFE under the Fitch rating case improves to below 4.0x from 2024. Cheniere Energy's leverage is similar with leverage around 4.5x through Fitch's forecast. However, Fitch believes Cheniere has a demonstrated track record in management and completion of complex construction projects and has less construction risk related to debottlenecking and the next planned expansion compared with NFE's pipeline of FLNG, power plants and terminal projects.
Key Assumptions
As per Fitch's price deck, natural gas at Henry Hub (HH) of
Growth capital spending is largely funded with retained cash and debt;
Dividends and capex in line with public guidance;
Execution of committed growth projects and any additional growth projects annually during the outer years of the forecast.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Long-term fixed price contracts exceeding 60% on a sustained basis with credit worthy counterparties;
Leverage (total debt with equity credit to operating EBITDA) below 4.5x on a sustained basis;
Adequate access to liquidity to meet working capital needs.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Excessive cost overruns for current construction projects;
Leverage (total debt with equity credit to operating EBITDA) above 5.5x on a sustained basis;
Deterioration in counterparty credit quality;
Aggressive cash distribution inconsistent with the company's long-term financing needs;
Long-term fundamentals over depressed international gas prices putting additional pressure the company's cash flow generation.
Liquidity and Debt Structure
As of
As of
The
Issuer Profile
Summary of Financial Adjustments
Consolidated leverage for NFE includes asset level debt and the Energos Formation Transaction obligations. Under Fitch's Corporate Criteria, the
Date of Relevant Committee
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
NFE has an ESG relevance score of '4' for Exposure to Environmental Impacts due to potential operational challenges related to extreme weather events in its operating regions. This has a negative impact on the credit profile and is relevant to the rating in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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