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Cheniere’s BG Agreement May Not Prevent Default, S&P Says

Cheniere Energy Inc. (LNG)’s 20-year contract to sell natural gas to a U.K. energy company probably won’t stave off a cash crunch that threatens to trigger a default on debt maturing in May, Standard & Poor’s said.

Cheniere fell 3.9 percent to $11.46 at the close in New York. The stock has lost almost three-fourths of its value since April 2006, when it traded as high as $44.40.

On Oct. 26, Cheniere surged 69 percent, the most in 15 years, after announcing an agreement to sell liquefied natural gas to the U.K.’s BG Group Plc (BG/) from a Louisiana export terminal that has yet to be built.

Cheniere, which is based in Houston, had $162.6 million in cash as of June 30 and a $298 million debt payment due in seven months, according to data compiled by Bloomberg.

The company won’t default because it will refinance its debt before the May payment is due, Chief Executive Officer Charif Souki said today in an interview. The BG agreement will help attract lenders to the project, he said.

Souki said in an interview last week that another export deal will be signed and announced within weeks. He declined to comment on the status of that deal today.

“They are free to have their own opinion,” Souki said of the S&P report.

Gas Glut

“Assuming its current liquidity does not materially improve, Cheniere will not be able to make its 2012 maturity payments,” Mark Habib, a Standard & Poor’s credit analyst based in New York, said today in a note to clients.

Cheniere has $3.14 billion in outstanding debt, most of it stemming from a gas-import terminal it operates in southwest Louisiana, Habib said in his report. As a glut of North American gas from new wells in shale-rock formations wiped out demand for imports and terminals like Cheniere’s languished, Souki has sought federal permits for the export terminal

The $7.2 billion plant, which would chill gas to liquid form so it can be shipped overseas aboard tankers, is expected open in 2015, Souki said.

“We just signed a contract with a major company that will generate tremendous amounts of cash for years to come,” Souki said today. “We continue to perform the way we said we would a year-and-a-half ago.”

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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