Why Cheniere Energy’s High Leverage Remains a Concern



Cheniere Energy’s high leverage

Cheniere Energy’s (LNG) debt has grown since 4Q15. Its total outstanding debt was ~$26.0 billion by the end of 3Q17, which is ~$3.0 billion higher than the total debt outstanding by the end of 2016.

This outstanding debt includes $16.0 billion of debt on Cheniere Energy Partners’ (CQP) balance sheet. However, CQP’s debt has not increased much during the last few quarters.

The increase in Cheniere Energy’s debt during 2017 is mostly due to debt issuance by Cheniere Corpus Christi Holdings. This debt issuance would prepay borrowing under its credit facility and funding the two liquefaction trains under construction at Corpus Christi.

Based on its 2018 adjusted EBITDA[1. earnings before interest, tax, depreciation, and amortization] guidance, Cheniere Energy had a pro forma net-debt-to-adjusted EBITDA multiple of 12.5x on September 30, 2017.

On that date, the company has a pro forma net-debt-to-adjusted EBITDA multiple of 6.3x based on the run-rate EBITDA guidance of $3.8 billion–$4.1 expected from the seven trains.

Cheniere Energy’s high leverage has remained a major concern for its investors considering its low cash flows and the uncertainties in the global LNG markets. However, the company expects to service its debt from cash flow generated through long-term contracts.

In the next article, we’ll look into Cheniere Energy’s current valuation.

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