Cheniere Energy keeps paying down debt in bid for high-grade ratings

By Devika Patel

Knoxville, Tenn., Nov. 6 – Cheniere Energy Inc. plans to have investment-grade ratings at the parent level within five years and is paying down debt aggressively to achieve that goal.

The company paid $100 million of term loan debt last quarter and expects to do the same this quarter, while paying down another $500 million in 2021.

“One of our primary long-term balance sheet priorities is achieving investment-grade ratings at the Cheniere level by the early to mid-2020s in order to solidify our long-term balance sheet and provide stability to our run rate cash flow per share guidance,” senior vice president and chief financial officer Zach Davis said on the company’s third quarter ended Sept. 30 earnings conference call on Friday.

“Due to the incremental debt we took on to address the convertible notes in the third quarter, our capital allocation priority over the short and medium term will be debt paydown.

“Executing on that priority, we prepaid $100 million of a Cheniere term loan in the third quarter and we expect to do the same during the fourth quarter, and we expect to pay down at least another $500 million of debt during 2021 while still having additional free cash flow,” he said.

The third quarter convertibles redemption was funded from the Cheniere term loan.

“We redeemed the remaining outstanding [Cheniere CCH HoldCo II, LLC] convertible notes and a significant portion of our 2021 convertible notes in July, using the Cheniere term loan in a transaction which both addressed near-term and relatively high-cost maturities and prevented significant share dilution, reducing our run rate share count by over 40 million shares,” Davis said.

But the company also took on debt last quarter, after receiving a ratings upgrade at Cheniere Corpus Christi Holdings, LLC.

“In August, [Cheniere Corpus Christi Holdings] received its third and final investment-grade rating, when Moody’s upgraded CCH’s senior debt to a rating of Baa3,” Davis said.

“The upgrade from Moody’s is one of the few, if not the only upgrade from high yield to investment grade in all of energy for 2020,” he said.

Cheniere Corpus Christi Holdings issued $769 million of 3.52% 19-year debt.

“Following the upgrade, CCH opportunistically issued $769 million of 3.52% senior secured notes due 2039 in a private placement transaction, securing the lowest yielding bond ever across the Cheniere complex,” Davis said.

“The proceeds from the issuance were used to repay a portion of the CCH credit facility,” he said.

The company also refinanced its term loan through a $2 billion sale of 4 5/8% notes due 2028.

“In September, we refinanced a portion of the outstanding Cheniere term loan balance via the issuance an inaugural bond at CEI,” Davis said.

“This successful issuance was upsized to $2 billion and priced at a 4 5/8% coupon, reflecting the strength with which the debt capital markets views our business model and operational capability.

“Strategically, this was a very important transaction for us, as it establishes CEI as a corporate issuer with a path to future unsecured issuances, a critical step in our long-term capital strategy.

“We remain committed to debt migration from operating companies to our parent level companies,” he said.

Cash and cash equivalents were $2,091,000,000 as of Sept. 30, 2020, compared to $2,474,000,000 as of Dec. 31, 2019.

Net long-term debt was $30,949,000,000 as of Sept. 30, 2020, compared to $30,774,000,000 as of Dec. 31, 2019.

On Aug. 17, subsidiary Cheniere Corpus Christi Holdings priced a $768.74 million private placement of 3.52% senior secured notes due Dec. 31, 2039.

Proceeds were earmarked to repay existing senior debt and unwind some interest rate hedging instruments.

On Sept. 15, Cheniere Energy priced an upsized $2 billion issue of eight-year senior secured notes (Ba3/BB) at par to yield 4 5/8%.

The issue size increased from $1 billion.

The yield printed at the tight end of yield talk in the 4¾% area.

Credit Suisse Securities (USA) LLC was the left lead bookrunner. Joint bookrunners were BofA Securities Inc., CIBC World Markets Corp., Credit Agricole CIB, Goldman Sachs & Co. LLC, HSBC Securities (USA) Inc., ING Financial Markets Inc., INTES, J.P. Morgan Securities LLC, Mizuho Securities USA Inc., Morgan Stanley & Co. LLC, MUFG, Natixis Securities Americas LLC, RBC Capital Markets LLC, Santander Investment Securities Inc., SG Americas Securities LLC and SMBC Nikko Securities America Inc.

The Houston-based LNG company earmarked the proceeds, including the additional proceeds resulting from the $1 billion upsizing of the deal, to repay term loan debt.

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