Sabine Pass Liquefaction LLC

STATUS

Closed 29 May 2013

SIZE

$8.9 billion

DESCRIPTION

First four trains of liquefaction project in Cameron Parish, Louisiana

SPONSOR

Cheniere Energy Partners

DEBT

$8.9 billion, including a $4.4 billion bank piece and $1.5 billion in ECA tranches

JOINT LEAD ARRANGERS

BBVA, BTMU, Crédit Agricole, Credit Suisse, HSBC, ING, Intesa, JP Morgan, Lloyds, Mizuho, Morgan Stanley, RBC, Scotiabank, SG, SMBC, Standard Chartered and Union Bank

ECAs

Kexim and K-sure

SPONSOR FINANCIAL ADVISER

Societe Generale

CHENIERE LEGAL COUNSEL

Andrews & Kurth

LENDER LEGAL COUNSEL

Chadbourne & Parke

ENVIRONMENTAL ADVISER

TRC

MARKET ADVISER

Wood Mackenzie

TECHNICAL ADVISER

Shaw Consultants

INSURANCE ADVISER

AON

Cheniere Energy Partners closed the largest North American project financing of 2012 with the $3.63 billion deal it closed in July 2012 for its Sabine Pass liquefaction project. It has now doubled that total to fund an expansion to the export terminal. Earlier this year, Cheniere closed two $1.5 billion bond financings, then added $2.27 billion more in bank debt in late May.

The overall $8.9 billion of debt falls under a single financing, as Cheniere planned after it closed the original $3.63 billion deal. Cheniere could have closed multiple add-on financings for project company Sabine Pass Liquefaction (SPL), but decided that this process would have been cumbersome – and probably unnecessary, given that project lenders have security over the sales and purchase agreements for all phases. So Cheniere amended and extended the original $3.63 billion deal for phase one, which consisted entirely of bank debt. The new $8.9 billion financing closed on 29 May 2013, and will be used to build trains one to four.

The 144A bond issues allowed Cheniere to suspend $3 billion of the original $3.63 billion, but keep the suspended debt – which had yet to be drawn – in reserve for the project's second phase rather than pay it down, as is typical with bond refinancings. Enlarging rather than adding to the bank financing, however, required many new lenders. Cheniere attracted new lenders for the $4.4 billion bank tranche of the $8.9 billion in debt, including Bank of America Merrill Lynch and Sumitomo Mitsui Banking Corporation, and brought in larger contributions from existing lenders.

With the enlarged deal, Cheniere needed to use multiple tranches and work with dozens of lenders, but it will probably need to amend the financing in the future. To amend the financing it would either need waivers from every lender in the original deal or find replacements for hold-out banks.

Besides the two bond issues and the bank tranche, Cheniere also raised $1.5 billion from Korean export credit agencies (ECAs) that had not participated in the original deal, with Standard Chartered as its adviser. Kexim provided a $420 million direct loan priced at 300bp over Libor, while Kexim and the Korea Trade Insurance Corporation (K-Sure) also guaranteed a $1.08 billion covered tranche, which they placed with Korean lenders.

The Korean ECAs came in on the back of the presence of Korea Gas Corporation (Kogas) as an offtaker from SPL's second phase, rather than because of the presence of Korean constructors or equipment. Bechtel is the engineering, procurement and construction contractor for the Sabine Pass export project. Cheniere was also able to convince Kexim to provide a mini-perm along essentially the same lines as the bank tranche – rather than a fully amortised deal, which it prefers.

With the new financing Cheniere wanted to increase its gearing to 75% from 65% and allow some cash from operations to count towards its equity commitment, because it has already spent the $2 billion in equity it raised towards phase 1. It was able to avoid finding too much more equity, though it had to satisfy itself with 70% gearing. And Cheniere exploited a more competitive bank market to reduce its margin. The bank mini-perm is now priced at 300bp over Libor, with step-ups to 325bp during operations, down from 350bp.

Standard & Poor's rates the bank and ECA tranches BB+, while Moody's Investors Service has affirmed the $3 billion in senior secured notes at Ba3. Both of the two bond issues, of $1.5 billion each, were oversubscribed, though Cheniere and bookrunner Morgan Stanley decided not to increase them because it wanted to minimise negative carry. The sponsor benefited from investors' familiarity with the existing, and largely redundant, though performing, import terminal at Sabine Pass.

Cheniere is planning fifth and sixth trains at Sabine Pass, though it only has contracts for a fifth, and would need approvals or licenses from the US Federal Energy Regulatory Commission and the US Department of Energy for both. Progress on these trains would require another amendment to the bank financing, though if Cheniere is successful in closing additional bond financings, it should be able to preserve some of the bank commitments in suspended form. In any case, the sponsor will need to complete some form of refinancing before the maturity of the seven-year mini-perm, which has a much longer amortisation profile.

But Cheniere should be able to move on a bond refinancing long before the end of construction, given buyers' proven willingness to accept construction risk. Sabine Pass Liquefaction also single-handedly rehabilitated the reputation of French banks in North American project finance. Societe Generale (SG), Cheniere's financial adviser on the bank and ECA facilities, and Crédit Agricole accepted $250 million tickets for phase one alone. Still, the heavy Korean presence in the enlarged bank group shows just how important Asian lenders are becoming to big-ticket project financings.