Business Context and Reporting Period
Company: Cheniere Energy Partners, L.P.
Filing Type: Form 8-K (Current Report)
Date of Report: May 14, 2012
Reporting Period: Event-based filing regarding the entry into material definitive agreements on May 14, 2012.
This filing details a series of transactions designed to secure capital for the construction of liquefaction facilities in Cameron Parish, Louisiana (Sabine Pass LNG terminal), and the acquisition of the Creole Trail Pipeline.
Key Financial Metrics and Transaction Values
This filing does not contain historical revenue, profit, or cash flow statements. It focuses on the terms of new capital commitments and asset acquisitions.
- Blackstone Investment: Agreement to sell 100 million Class B Units at $15.00 per unit.
- Initial Funding: $500 million for 33,333,334 units.
- Total Potential Commitment: Up to $1.5 billion in aggregate capital contributions based on liquidity needs.
- Cheniere Terminals Investment: Agreement to purchase 33,333,334 Class B Units at $15.00 per unit for total consideration of $500 million.
- Cheniere Subscription: Agreement to issue 12,000,000 Class B Units at $15.00 per unit for consideration of $180 million.
- Creole Trail Pipeline Acquisition: Total consideration of $480 million.
- $180 million funded via the issuance of Class B Units (Subscription Agreement).
- Remaining $300 million to be paid in cash (implied by total consideration less unit purchase).
- Management Fees (Sabine Pass):
- Pre-Operational: 0.6% of monthly capital expenditures (O&M) and 2.4% of monthly capital expenditures (Management Services).
- Post-Operational (Per Train): $83,333.33/month (O&M) and $541,666.66/month (Management Services).
Material Changes and Agreements
The filing reports the execution of multiple definitive agreements on May 14, 2012, representing a material change in the Partnership's capital structure and asset base:
- Capital Structure: Introduction of Class B Units with a conversion value increasing at a compounded rate of 3.5% per quarter. These units have liquidation preference over Subordinated Units and voting rights on an as-converted basis.
- Asset Acquisition: Agreement to acquire equity interests in entities controlling the Creole Trail Pipeline for $480 million.
- Corporate Governance: Establishment of an 11-member Board of Directors during the "Investor Approval Period" (until Blackstone and co-investors own less than 20% of units or 50 million Class B Units).
- Cheniere appoints 4 directors.
- Blackstone (Purchaser) appoints 3 directors.
- 4 Independent directors.
- Operational Control: Execution of Operation and Maintenance (O&M) and Management Services Agreements with Cheniere affiliates for the Sabine Pass Liquefaction Facilities.
- Offtake Agreement: 20-year LNG Sale and Purchase Agreement (SPA) with Cheniere Marketing for excess LNG, priced at 115% of Henry Hub plus profit sharing.
Guidance, Outlook, Risks, and Contingencies
Use of Proceeds: Net proceeds from the private placement are intended for the construction of two liquefaction trains and related facilities at Sabine Pass, as well as funding the acquisition and operating expenses of the Creole Trail Pipeline.
Conditions Precedent: The Initial Funding of $500 million is subject to several conditions, including:
- Closing of debt financing for Trains 1 and 2.
- Consummation of the Creole Trail Pipeline transfer.
- Execution of related definitive documents.
Termination Risks: The Blackstone Unit Purchase Agreement may be terminated if:
- Initial Funding has not occurred by December 31, 2012.
- There are breaches of representations or covenants.
- The Partnership enters into certain alternative contracts or transactions.
Subordinated Unit Cancellation: If the Partnership fails to obtain financing commitments and Board approval to proceed with Trains 3 and 4 by October 1, 2014, a specified number of Subordinated Units will be cancelled to enable a $0.50 per unit quarterly distribution.
LNG SPA Risks: The 20-year SPA with Cheniere Marketing includes termination rights for late payments exceeding $30 million, delays in commercial delivery exceeding 180 days, and force majeure events totaling 24 months within a 36-month period.
Key Facts for Investor Verification
- Capital Commitment Status: Verify if the $500 million Initial Funding from Blackstone and Cheniere Terminals has closed and if the conditions precedent (debt financing for Trains 1 & 2) have been satisfied.
- Debt Financing: Confirm the status of the debt financing required for the construction of Trains 1 and 2, which is a condition for the equity funding.
- Creole Trail Pipeline Closing: Verify the closing of the $480 million acquisition of the Creole Trail Pipeline.
- Class B Unit Terms: Review the specific mechanics of the 3.5% quarterly compounding conversion value and the mandatory conversion triggers (substantial completion of Train 3 or fifth anniversary).
- Board Composition: Confirm the appointment of the 11 directors and the composition of the Executive Committee as outlined in the Amended LLC Agreement.
- Export Licenses: Monitor the status of LNG export licenses required to fulfill the 20-year SPA with Cheniere Marketing.