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Cheniere Energy, Inc. 8-K Report, Material Agreement (Jun 28, 2010)

Filed June 28, 2010For Securities:LNG

Summary

Cheniere Energy, Inc. (LNG) filed an 8-K on June 28, 2010, detailing significant restructuring of its Sabine Pass LNG terminal operations and related agreements, effective July 1, 2010. The primary focus is the assignment of the Terminal Use Agreement from Cheniere Marketing, LLC to Cheniere Energy Investments, LLC, a subsidiary of Cheniere Energy Partners, L.P. This move shifts terminal use rights and associated obligations, with Cheniere Energy Partners, L.P. now guaranteeing Cheniere Investments' payment obligations. Furthermore, the filing outlines a new Variable Capacity Rights Agreement between Cheniere Investments and Cheniere Marketing, establishing a framework for Cheniere Marketing to utilize capacity at the Sabine Pass terminal. This includes a revenue-sharing arrangement and a mechanism for covering shortfalls in distributions to common unitholders. The report also details amendments to service agreements with JPMorgan LNG Co. and modifications to Cheniere's credit facility, including the application of approximately $63.6 million from a reserve account towards the repayment of outstanding loan principal and accrued interest.

Key Highlights

  • 1Assignment of the LNG Terminal Use Agreement from Cheniere Marketing, LLC to Cheniere Energy Investments, LLC, a subsidiary of Cheniere Energy Partners, L.P.
  • 2Establishment of a Variable Capacity Rights Agreement, allowing Cheniere Marketing to utilize Sabine Pass terminal capacity under specific terms.
  • 3Cheniere Energy Partners, L.P. now guarantees the payment obligations of Cheniere Energy Investments, LLC under the Terminal Use Agreement.
  • 4Amendments to service and capacity agreements with JPMorgan LNG Co., realigning payment flows and service fees.
  • 5Application of approximately $63.6 million from the TUA Reserve Account to reduce the principal and accrued interest of Cheniere's 2008 convertible loans.
  • 6Restructuring of the services fee paid by Cheniere Energy Partners, L.P. to Cheniere LNG Terminals, Inc., linking it to available cash after distributions and operational needs.
  • 7Termination of the Original Tri-Party Agreement and introduction of a New Tri-Party Agreement involving Cheniere Investments, Sabine Pass LNG, and JPMorgan LNG Co.

Frequently Asked Questions

The primary impact is the transfer of rights and obligations related to the Sabine Pass LNG terminal use from Cheniere Marketing, LLC to Cheniere Energy Investments, LLC. This restructuring consolidates terminal operations under Cheniere Investments and involves a new guarantee from Cheniere Energy Partners, L.P. for payment obligations, potentially altering the financial structure and risk allocation within the Cheniere group.

The Variable Capacity Rights Agreement allows Cheniere Marketing to utilize capacity at the Sabine Pass LNG terminal. It introduces a profit-sharing mechanism where Cheniere Marketing pays Cheniere Investments 80% of the expected gross margin per LNG cargo, and also includes provisions for covering shortfalls in distributions to Cheniere Energy Partners, L.P. common unitholders, subject to certain limitations.

The amendment allows for the application of approximately $63.6 million from the TUA Reserve Account to repay accrued interest and reduce the principal balance of Cheniere's outstanding convertible loans. This effectively lowers the outstanding debt principal to $247.3 million and utilizes reserve funds for debt reduction, which could improve the company's financial leverage and credit profile.

The Amended and Restated Services Agreement modifies the fee paid by Cheniere Energy Partners, L.P. to Cheniere LNG Terminals, Inc. for administrative services. The fee is now tied to the lesser of a maximum quarterly fee (inflation-adjusted) or the partnership's unrestricted cash available after making common unitholder distributions and retaining cash for business operations. This links service costs more directly to the partnership's financial capacity.