Business Context and Reporting Period
This Form 8-K Current Report was filed by Cheniere Energy Partners, L.P. on June 11, 2012. The filing details a significant capital transaction and amendments to the Partnership's governing documents related to the development of the Sabine Pass Liquefaction Facilities.
Key Financial Metrics and Transaction Details
- Capital Raised: The Partnership sold 11,111,111 Class B Units to Cheniere Class B Units Holdings, LLC (CBUH), a wholly-owned subsidiary of Cheniere Energy, Inc., for total consideration of $166,666,665.
- Future Commitments: CBUH has agreed to acquire an additional 22,222,223 Class B Units under a Unit Purchase Agreement dated May 14, 2012.
- Unit Economics: The Class B Units do not entitle holders to cash distributions except in the event of liquidation. However, the conversion value of these units increases at a compounded rate of 3.5% per quarter.
- Liquidity and Debt: The filing does not provide specific data on the Partnership's overall cash flow, total debt, or liquidity ratios. It notes that the issuance relied on an exemption from registration requirements under Section 4(2) and Regulation D of the Securities Act of 1933.
Material Changes and Structural Amendments
On June 11, 2012, the Partnership adopted a Second Amended and Restated Agreement of Limited Partnership. Key changes include:
- New Security Class: Creation of Class B Units, which are convertible into Common Units.
- Conversion Triggers: Mandatory conversion occurs upon the earlier of the substantial completion of the third liquefaction train ("Train 3") or the fifth anniversary of the latest initial funding. Optional conversion is available under specific conditions, including 83 months post-notice to proceed or prior to a quarter where the Partnership generates sufficient surplus to distribute $0.425 per unit (the "IQD").
- Subordinated Unit Cancellation: A mechanism was established to cancel Subordinated Units if the Partnership fails to secure financing commitments and board approval for Train 3 by October 1, 2014. This cancellation is intended to enable a $0.50 per unit quarterly distribution from "contracted adjusted operating surplus."
- Project Milestone: On June 12, 2012, Sabine Pass Liquefaction, LLC issued a limited notice to proceed under the EPC contract for the Liquefaction Facilities.
Outlook, Risks, and Contingencies
- Financing Contingency: The ability to maintain the current capital structure without cancelling Subordinated Units is contingent upon obtaining all debt and equity financing commitments and board approval for Train 3 by October 1, 2014.
- Revenue Definition: The "contracted adjusted operating surplus" used for distribution calculations is derived solely from contracted capacity revenues and LNG sale and purchase agreements with terms of at least three years. It explicitly excludes revenues related to the "115%" portion of the purchase price tied to Henry Hub natural gas prices.
- Subordination End: The subordination period for Subordinated Units will end if the IQD is earned and paid for three consecutive four-quarter periods, or if 150% of the IQD is earned from contracted adjusted operating surplus for four consecutive quarters.
Key Facts for Investor Verification
- Verify the status of the "limited notice to proceed" issued on June 12, 2012, and whether it has expanded to a full notice to proceed for Train 3.
- Monitor the October 1, 2014 deadline for securing financing commitments and board approval to avoid the cancellation of Subordinated Units.
- Confirm the timeline for the substantial completion of Train 3, as this triggers the mandatory conversion of Class B Units.
- Review the specific terms of the "contracted adjusted operating surplus" to understand the revenue base available for distributions.
- Check for the execution of the remaining 22,222,223 Class B Unit purchase by CBUH as contemplated in the May 14, 2012 agreement.