S&P rates Cheniere LNG loan BB

Standard & Poor's said it assigned its BB rating and 3 recovery rating to the proposed $600 million term loan B bank facility at Cheniere LNG Holdings LLC, an indirectly owned 100% subsidiary of Cheniere Energy Inc. (B/stable/--).

The outlook is stable.

The proceeds from the bank loan will be distributed to Cheniere Energy to support future LNG terminal development and to fund a reserve to cover debt service payments during the four years before distributions are expected to begin from the Sabine Pass LNG terminal.

S&P said the rating reflects construction risk in the building of the LNG terminals; cash flow available for debt service at Cheniere LNG that is subordinated to debt service at Sabine Pass; refinancing risk in 2012; the fact that Cheniere LNG constitutes 100% of Cheniere's currently contracted cash flows; lack of a pre-funded debt service reserve (beyond the initial reserve for debt service during construction); and the fact that while lenders have a security interest in Cheniere LNG's equity ownership in the projects, that equity pledge is subordinate to the interests of lenders at the Sabine Pass project.

These weaknesses are offset at the BB level, S&P said, by the following strengths: Expectations of strong and stable cash flows at Sabine Pass once it is operating; a fixed-price engineering, procurement, and construction contract at Sabine Pass with an experienced builder (Bechtel) that minimizes construction risks; strong ring-fencing protections that insulate the credit quality of Cheniere LNG from the rest of the Cheniere organization and allow for a three-notch rating differential between Cheniere LNG and Cheniere; 100% sweep of all excess cash flows from existing Sabine Pass contracts to pay down the bank loan; a debt service escrow account; and the special-purpose nature of Cheniere LNG

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