01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
Cheniere Energy Partners, L.P.
(CQP) is a Delaware limited partnership formed by Cheniere Energy, Inc. whose sole operating asset is the Sabine Pass LNG receiving terminal in western Cameron Parish, Louisiana. The terminal achieved commercial operability in September 2008, and its initial 2.6 Bcf/d of sendout capacity and 10.1 Bcf of storage are now able to accept commercial cargoes. Construction of the remaining 1.4 Bcf/d of sendout capacity and 6.7 Bcf of storage was approximately 88%a complete as of December 31, 2008, with full operability expected in the third quarter of 2009.
The full 4.0 Bcf/d of regasification capacity is contracted under three 20-year terminal use agreements with Total LNG USA, Chevron U.S.A. and Cheniere Marketing, LLC, the last of which is guaranteed by Cheniere and rated non-investment grade (CCC+). The partnership reported 2008 revenue of $15.0 millionb, all from the Cheniere Marketing TUA for the last three months of 2008, and a net loss of $78.3 million, compared with $49.0 million in 2007. Long-term debt totaled $2.18 billion, including $2,215.5 million of Senior Notes issued by Sabine Pass LNG, and interest payments on the notes are approximately $164.8 million per year.
Cash distributions are funded from a distribution reserve of $32.8 millionc for the initial quarterly distribution of $0.425 per unit through the quarter ending June 30, 2009. The filing states that distributions beyond that point depend on Sabine Pass LNG meeting a fixed charge coverage ratio test of 2.0 to 1.0 after March 31, 2009, which requires consolidated cash flow of roughly $375 million.
The main investor risks are counterparty concentration in Cheniere Marketing, the restrictive Sabine Pass Indenture, which can block distributions to the partnership, the lack of diversification with a single asset, and the fact that Cheniere controls the general partner and owns about 90.6%d of the partnership. Management reported effective internal control over financial reporting as of December 31, 2008.
02—Key points
Key Highlights
- Sole asset is the Sabine Pass LNG receiving terminal; initial 2.6 Bcf/d sendout and 10.1 Bcf storage achieved commercial operability in September 2008, and full 4.0 Bcf/d and 16.8 Bcf operability is expected in Q3 2009.
- Full 4.0 Bcf/d of regasification capacity is contracted under three 20-year TUAs: Total (about 1.0 Bcf/d, approximately $125 million per year from April 1, 2009), Chevron (about 1.0 Bcf/d, approximately $125 million per year from July 1, 2009), and Cheniere Marketing (about 2.0 Bcf/d, approximately $250 million per year).
- 2008 revenue was $15.0 million versus zero in 2007; net loss widened to $78.3 million from $49.0 million.
- Total long-term debt of $2.18 billion, with Senior Notes of $2,215.5 million principal and annual interest of about $164.8 million.
- Total remaining construction cost budget is approximately $1,559 million, of which $1,415.9 million had been incurred as of December 31, 2008.
- Distribution reserve of $32.8 million supports the $0.425 initial quarterly distribution through the quarter ending June 30, 2009; after March 31, 2009 distributions depend on the 2.0x fixed charge coverage test under the Sabine Pass Indenture.
- Cheniere Marketing and its guarantor Cheniere are rated CCC+ (non-investment grade), which the filing identifies as the principal counterparty risk.
03—Questions
Frequently Asked Questions
When will Cheniere Energy Partners be able to pay distributions from operations rather than reserves?
The filing states that distributions are funded from the distribution reserve through the quarter ending June 30, 2009. It expects combined cash flow from the Total and Chevron TUAs to cover Senior Notes debt service and operating costs beginning in the third quarter of 2009, and says distributions after that depend on Sabine Pass LNG being able to pay the partnership under the indenture.
What is the main risk to the partnership's cash flow?
Substantially all revenue depends on the three TUAs. The filing says Cheniere Marketing has a limited operating history, limited capital, no credit rating and an unproven strategy, and that the Cheniere guarantee is rated CCC+, so its performance is the principal counterparty risk.
What restricts Sabine Pass LNG from paying cash to the partnership?
Under the Sabine Pass Indenture, distributions require funding of an operating account, debt payment and debt service reserve accounts (about $82.4 million at December 31, 2008), and a fixed charge coverage ratio of 2.0 to 1.0. After March 31, 2009 the filing estimates consolidated cash flow must exceed about $375 million.
How much has the Sabine Pass LNG terminal cost and when will it be complete?
The estimated budget through full operability is approximately $1,559 million excluding financing costs, with $1,415.9 million incurred by December 31, 2008. Remaining construction was about 88% complete at year end, with full operability expected in the third quarter of 2009.
Who controls the partnership?
Cheniere Energy, Inc. indirectly owns about 90.6% of the partnership and controls its general partner, Cheniere Energy Partners GP, LLC. The filing states that unitholders have limited voting rights and cannot remove the general partner without Cheniere Subsidiary Holdings' consent, which holds about 82% of common and subordinated units.
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