In July 2012, Cheniere Energy Partners (CQP) closed on $3.63 billion of bank debt for the first two trains of its Sabine Pass liquefied natural gas export project in Cameron parish, Louisiana. The seven-year mini-perm was oversubscribed, after the deal’s lead arrangers took tickets of at least $250 million. Pricing on that debt started at 350bp over Libor.

Sabine Pass Liquefaction

STATUS

$5.9 billion in bank debt closed 29 May 2013, three rounds of project bonds ($1.5 billion, $1.5 billion and $1 billion) also closed in 2013

DESCRIPTION

Four-train LNG project in Cameron parish, Louisiana

SPONSOR

Cheniere Energy Partners (CQP)

BANK JOINT LEAD ARRANGERS

BBVA, Crédit Agricole, Credit Suisse, HSBC, ING, Intesa, JP Morgan, Lloyds, Mizuho, Morgan Stanley, MUFG, RBC, Scotiabank, Societe Generale, SMBC, Standard Chartered

ECAs

Kexim and K-sure

BOND BOOKRUNNERS

Banca IMI, Crédit Agricole, Credit Suisse, HSBC, ING, JP Morgan, Lloyds, Mizuho, Morgan Stanley, MUFG, RBC, Scotiabank, SMBC, Societe Generale, Standard Chartered

SPONSOR FINANCIAL ADVISER

Societe Generale

SPONSOR LEGAL ADVISER

Andrews & Kurth

LENDERS’ LEGAL ADVISER

Chadbourne & Parke

ENVIORNMENTAL ADVISER

TRC

MARKET ADVISER

Wood Mackenzie

TECHNICAL ADVISER

Shaw Consultants

INSURANCE ADVISER

Aon

EPC CONTRACTOR

Bechtel

At close, CQP indicated that it would look to raise additional debt at Sabine Pass Liquefaction – possibly within a year – to fund third and fourth trains. At the same time it suggested that the project would issue bonds to refinance, or at least suspend, some of the trains one and two bank debt.

In early 2013, CQP launched a $1 billion bond whose proceeds would suspend a portion of the 21 original banks’ commitments – and eventually redirect those commitments towards the third and fourth trains. CQP met with a strong response, and increased the size of the issue to $1.5 billion. A few months later, CQP returned to the 144A market and priced and closed another $1.5 billion issue. The bonds again suspended, rather than repaid, existing bank debt.

CQP encountered an even more accommodating bank market in 2013 than the year before. In late May, it enlarged the original bank facility to $5.9 billion, persuading many of the original lenders to write larger tickets, as well as attracting contributions from new participants, including SMBC. The developer launched a $4.4 billion commercial bank tranche at 325bp over Libor, but heavy interest allowed CQP to start pricing at 300bp (with step-ups to 325bp over the life of the mini-perm). CQP also increased the project’s gearing, to 70% from 65%.

The two Korean export credit agencies, Kexim and K-sure, also joined the enlarged deal. Kexim provided a $420 million direct loan, also priced at 300bp, and Kexim and the Korea Trade Insurance Corporation (K-Sure) guaranteed a $1.08 billion covered tranche, which they placed with Korean lenders. It was Kexim and K-Sure’s first project financing in the US, and required the two to get comfortable with a mini-perm structure, rather than the fully amortising debt that they usually prefer.

Finally, in November, CQP launched a $1 billion bond, this time to refinance about $900 million of the $5.9 billion bank facility. All project-level debt, both bonds and loans, is pari passu. By the end of 2013, CQP had about $9 billion on hand to help build trains one through four at Sabine Pass.

The fundraising met CQP’s targets, even though it had not expected to encounter such favourable market conditions when it started talking to lenders in 2011. Banks even allowed CQP to take distributions from the project before all four trains are completed. The logic behind this concession is that each train can be viewed as its own project, even though a single special purpose vehicle (Sabine Pass Liquefaction) owns all four, and they share an engineering, procurement and construction contractor (Bechtel).

Sabine Pass was the first LNG export facility in the US in decades, had solid offtake agreements and uses proven and bankable technology. It was the only export LNG project to be financed in North America in 2012 and 2013, and came to market in years when power and renewables deal flow was subdued.

But two competing US LNG export projects in the US – Freeport LNG and Cameron LNG – are likely to sign in 2014, just when CQP turns again to the bond market to refinance.

As of early February 2014, CQP had yet to draw on any of the remaining bank debt at Sabine Pass. CQP has used equity and the bond proceeds to fund construction because it only has to pay a commitment fee on undrawn debt of 120bp, or 40% of the debt’s drawn margin. By April, however, CQP may need to draw on the bank facility. At that point it may decide to issue new bonds, with the proceeds refinancing a portion of that facility.