Rating Action: Moody's rates New Fortress Energy B1
Global Credit Research - 03 Aug 2020
New York, August 03, 2020 -- Moody's Investors Service ("Moody's") assigned first time ratings to New Fortress Energy LLC (NFE), including a B1 Corporate Family Rating (CFR), a B1-PD Probability of Default Rating, a B1 rating to its senior secured term loan and a SGL-3 Speculative Grade Liquidity rating. The outlook is stable.
Assignments:
..Issuer: New Fortress Energy LLC
.... Probability of Default Rating, Assigned B1-PD
.... Speculative Grade Liquidity Rating, Assigned SGL-3
.... Corporate Family Rating, Assigned B1
..Issuer: NFE Atlantic Holdings LLC
....Senior Secured Term Loan, Assigned B1 (LGD3)
Outlook Actions:
..Issuer: New Fortress Energy LLC
....Outlook, Assigned Stable
..Issuer: NFE Atlantic Holdings LLC
....Outlook, Assigned Stable
RATINGS RATIONALE
NFE's B1 CFR is underpinned by Moody's expectations of rising sales of LNG, backed by long term contracts and proprietary downstream infrastructure appended to power generation facilities in Jamaica and Puerto Rico, as well as Mexico and Nicaragua, and by the expectation of rapid deleveraging in 2021.
The company's ratings also reflect Moody's views on the credit quality of its customers. NFE plans to improve its customer and geographic diversification in 2020-2021, but its operating cash flow retains high dependence on a few key utility customers in Jamaica and Puerto Rico. The rating assumes a relatively low volatility in earnings, underpinned by high level of contracted revenues, including some take-or-pay and minimum volume commitments, expected volume growth, as well as above market contracted prices that support strong cash margins.
NFE is a high growth business. The B1 CFR reflects our expectation that the company will maintain a conservative balance of debt and equity funding while executing on numerous growth opportunities. NFE's financial policy targets reasonable financial leverage of debt/EBITDA of 3x, to be supported by reinvestment of growing operating cash flows and equity issuances to help fund growth investments. The Company expects to more than double its earnings in 2021 as a result of launching new facilities in Nicaragua and Mexico in the second half of 2020. This should result in leverage declining rapidly to below 3x in 2021 from the 6.2x debt/EBITDA that Moody's expects in 2020.
NFE maintains adequate liquidity, reflected in its SGL-3 rating, that is supported by substantial cash balances, that at the end of June 2020 stood at $167 million (or about 18% of its long term debt). With all operating facilities generating substantial operating cash margin, NFE's principal financing needs are driven by its growth capital investment. The rating assumes that NFE will maintain a sizable cash balance in 2020-21 and will continue to proactively raise additional financing to support growth investment requirements. The adequate liquidity position is also supported by substantial alternate liquidity sources, including growing infrastructure power assets, as well as the demonstrated ability to raise equity to support growth. The company also benefits from extended maturity profile of its debt, with the $800 million senior secured loan maturing in 2023.
NFE's senior secured term loan due 2023 is rated B1, at the same level as the CFR. The facility is raised at the level of NFE Atlantic Holdings LLC, an indirect wholly owned subsidiary of NFE, and is guaranteed by NFE and its operating companies. The term loan comprises the substantial majority of the company's consolidated debt.
The stable outlook assumes continued robust execution on growth plans and strong operating performance across the expanding asset base that should deliver a step up in operating cash flows in the second half of 2020 and strengthen the leverage profile in 2021.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The B1 CFR could be upgraded if the company sustains growth in EBITDA and builds a strong operating track-record. The upgrade would require an improvement in the credit profile of the customer base, including through broader earnings diversification or larger exposures to higher rated customers and jurisdictions. Also, the company will need to demonstrate its commitment to equity co-funding of future growth projects and its ability to operate within the stated financial policy with debt/EBITDA below 3x.
The ratings may be downgraded if the deleveraging trend is reversed as a result of a decline in operations or regulatory interference with debt/EBITDA not trending below 5x or if liquidity position weakens. Failure to resolve FERC dispute in Puerto Rico in a timely manner may cause a significant disruption to operations and lead to a negative outlook or a downgrade of the ratings.
New Fortress Energy LLC is a US-listed, high growth energy infrastructure company with downstream LNG operations in Jamaica, Puerto Rico and in the US.
The principal methodology used in these ratings was Midstream Energy published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147839. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Elena Nadtotchi VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Steven Wood MD - Corporate Finance Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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