NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A-' rating on Cameron LNG, LLC's $2.9 billion senior secured debt. The Rating Outlook is Stable.
The rating for the Cameron liquefied natural gas (LNG) project derives from low cash flow volatility anchored by availability-based tolling agreements, with costs passed through to the revenue counterparties. The rating is supported by substantial mitigation of completion risk and is consistent with Fitch's view of the credit quality of the lowest rated toller.
Comparable Fitch-rated projects may share some, but not all, of Cameron's attributes including a strong completion guarantee, long tail on the tolling agreement, no merchant risk, and no exposure to cost variability. The Stable Outlook reflects that although construction is currently behind schedule, the risk is sufficiently mitigated by the sponsors' completion guarantee.
KEY RATING DRIVERS
Strong Mitigation of Completion Risk: Development of the 13.92 (nameplate capacity) million metric tons per annum (MTPA) LNG facility is backed by a fixed-price, date-certain construction agreement from experienced contractors. Cameron also benefits from guarantees from highly-rated sponsors in which they pledge on a several basis to repay all senior debt obligations if completion, based upon specified tests, is not achieved by September 2021.
Stable Projected Operations, Full Cost Pass-Through: Operating risk is mitigated by the use of proven technology with numerous applications worldwide. The tollers' absorption of 100% of all operating and maintenance costs and Cameron's redundant equipment reduce the impact of potential forced outages. The ability to adjust the targeted annual amount of LNG production at the start of each budget year provides additional risk mitigation.
No Supply Risk: Cameron has no exposure to the potential variability in supply or cost for feedstock as the tollers are responsible for procuring feed gas for LNG operations.
Stable Contracted Revenues: Long-term availability-based tolling agreements with three highly-rated tollers eliminate volume and price risk. The tariff increases to moderate the impact of additional debt that may be incurred due to rising capital costs during construction. There is a seven-and-a-half-year tail to generate additional contracted cash flow after debt maturity and contract termination risk is low.
Manageable Debt Structure: The total $7.415 billion senior secured debt (including the rated debt) is fully amortizing. Cameron has 50% of its senior debt exposed to variable interest rates, declining to 30% beginning in January 2020. Additional leverage is limited by covenants to support debt service coverage ratios (DSCRs) of at least 1.50x, relying on incremental equity contributions committed by the sponsors to offset potential construction cost overruns.
Resilient Cash Flow: Under a combination of stressed interest rates, increased capital expenditure and conservative plant availability, the Fitch rating case projects a DSCR profile averaging 1.81x with a minimum of 1.51x. A robust 2.48x project life coverage ratio in Fitch's rating case further demonstrates Cameron's strong credit profile.
Peers: Cameron's combined completion, revenue and operating features make its credit profile strong compared to Fitch-rated LNG peers. FLNG Liquefaction 2, LLC ('BBB'/Stable Outlook) has a lower average rating case DSCR of 1.73x compared to 1.81x for Cameron and FLNG has greater exposure to cost variability. Some Fitch 'A' rated projects such as RasGas ('A+'/Stable Outlook) have higher DSCRs compared to Cameron, but lack the revenue certainty that Cameron has through its long-term tolling agreements.
Positive/Negative - Counterparty Risk: Downgrade of any sponsor through project completion could result in a downgrade of Cameron. Upgrade or downgrade of any toller would result in a commensurate change of the project's rating.
--Variable Operating Performance: Unstable plant performance that reduces revenue payments could result in a downgrade.
--Increasing Debt Burden: Interest rates that are persistently higher than what is modeled in Fitch's rating case financial analysis, materially reducing DSCRs, would result in a downgrade.
--Completion Challenges: Material delays, cost overruns or performance shortfalls resulting in reduced financial cushion may put pressure on the rating.
SUMMARY OF CREDIT
The project is currently facing a potential four to six-month construction delay on all three trains, raising concerns that project completion would occur past the substantial completion date of Nov. 15, 2018. While the cause of delays has not been fully determined, the project has had to cope with early soil instability affecting the earthen works and extreme weather conditions (i.e. flooding in Louisiana). As part of their mitigation efforts, contractors have deployed additional resources to make up for some of the lost time. In addition, Cameron is reviewing a proposal for a revised schedule from contractors and has indicated that the working relationship between Cameron and the contractors remains cooperative.
Investors are protected by the sponsors' pledge to repay severally (not jointly) all senior debt obligations if completion, based upon specified tests, is not achieved by September 2021. The expectation is that the experienced contractors will be able to complete the project before this date. Fitch views the mitigation techniques implemented by the contractors as reasonable; however, Fitch will continue to monitor Cameron's progress as construction advances and an updated schedule is developed.
Cameron has achieved total project progress of approximately 50% through June 2016 compared to a forecast of approximately 52%. Engineering progress remains above expectations, at 87% complete, compared to a forecast of 84%. Procurement also remains on track at 76% complete, compared to a forecast of 72%. Construction remains approximately 9% behind schedule, at 18% complete. Spending is approximately 21% behind the forecast as of June 2016 and is consistent with the actual construction schedule. There have been no material changes in the project's cost.
Fitch's base case scenario reflects Fitch's view of long-term sustainable performance. The base case applies a LIBOR curve through debt maturity in which the rate peaks at 4.12% in 2027 for variable rate debt. The base case includes 3.19% interest rate on the debt under the hedging arrangement. Availability of 92% is included for planned and unplanned outages. The DSCR profile is strong with an average of 2.06x and a minimum of 1.78x through the debt's maturity.
Fitch's rating case reflects a reasonably likely combination of uncorrelated stresses that could occur in any year but are not expected to occur frequently. Under the rating case, Fitch applies interest rates at highs of 8.8% to 10.7% for the unhedged portion of debt. Fitch maintains plant availability at 92% as sufficient to capture the potential risk of unforeseeable plant underperformance over the life of the debt. Fitch includes a 10% increase in EPC cost overruns, which results in a DSCR profile averaging 1.81x through the debt's maturity, with a minimum of 1.51x.
The Cameron LNG project will be a bidirectional facility capable of liquefaction and regasification of LNG for import and export upon commercial operation of the liquefaction terminals and with the existing regasification facilities. Cameron will contain three equally sized trains with a total nameplate capacity of 13.92 MPTA. LNG output of 12 MTPA is contracted under three long-term tolling agreements with Engie (formerly GDF SUEZ S.A.) and two subsidiaries whose obligations are backed by parent guarantees from Mitsubishi Corporation and Mitsui & Co., Ltd. Cameron will connect to the Cameron Interstate Pipeline, separately owned and upgraded by Sempra Energy ('BBB+'/Stable Outlook) and Columbia Gulf Transmission Pipeline.
Cameron LNG is indirectly owned by Sempra Energy (50.2%), Engie (16.6%), Mitsui & Co., Ltd. (16.6%), and Mitsubishi Corporation and Nippon Yusen Kabushiki Kaisha (NYK) under a joint venture (16.6%, Mitsubishi owns approximately 11% and NYK owns approximately 5%).
Total debt of approximately $7.4 billion will be used to construct and operate the liquefaction facilities and operate the existing regasification facilities. Total debt is provided by Japan Bank for International Cooperation ($2.5 billion), commercial banks insured by Nippon Export Investment and Insurance ($2 billion) and the rated loans provided by commercial banks ($2.9 billion).
Senior debt obligations are secured by first-ranking perfected security interest in all rights, title, and interest of the borrower's assets including tolling agreements, parent company guarantees, plant, property, equipment, or interest therein, project land EPC contract and associated parent guarantees, secured accounts, and material project agreements.
Additional information is available on www.fitchratings.com.
Criteria for Interest Rate Stresses in Structured Finance Transactions
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