OREANDA-NEWS. Fitch Ratings has affirmed the 'A-' rating on Cameron LNG, LLC's $2.915 billion senior secured debt. The Rating Outlook is Stable.

The rating for the Cameron liquefied natural gas (LNG) project derives from low margin volatility anchored by availability-based tolling agreements, with costs passed through to the revenue counterparties. The rating is supported by substantial mitigation of completion risk and is consistent with Fitch's view of the credit quality of the lowest rated toller. The rating affirmation is based on the construction progress, which is on schedule, within budget and in line with performance expectations. The Stable Outlook reflects Fitch's expectation that contractors remain on track to complete the project by November 2018.

KEY RATING DRIVERS

Completion Risk: Stronger
Strong Mitigation of Completion Risk - Development of the 13.92 (nameplate capacity) metric tons per annum (MTPA) LNG facility is backed by a fixed-price, date-certain construction agreement from experienced contractors. Cameron also benefits from guarantees from highly-rated sponsors in which they pledge on a several basis to repay all senior debt obligations if completion, based upon specified tests, is not achieved by September 2021.

Operation Risk: Stronger
Stable Projected Operations, Full Cost Pass-Through - Operating risk is mitigated by the use of proven technology with numerous applications worldwide. The tollers' absorption of 100% of all operating and maintenance costs and Cameron's redundant equipment reduce the impact of potential forced outages. The ability to adjust the targeted annual amount of LNG production at the start of each budget year provides additional risk mitigation.

Supply Risk: Stronger
No Supply Risk - Cameron has no exposure to the potential variability in supply or cost for feedstock as the tollers are responsible for procuring feed gas for LNG operations.

Revenue Risk: Stronger
Stable Contracted Revenues - Long-term availability-based tolling agreements with three highly-rated tollers eliminate volume and price risk. The tariff increases to moderate the impact of additional debt that may be incurred due to rising capital costs during construction. There is a seven-and-a-half-year tail to generate additional contracted cash flow after debt maturity and contract termination risk is low.

Debt Structure: Midrange
Manageable Debt Structure - The total $7.415 billion senior secured debt (including the rated debt) is fully amortizing. Cameron has 50% of its senior debt exposed to variable interest rates, declining to 30% beginning in January 2020. Additional leverage is limited by covenants to support debt service coverage ratios (DSCRs) of at least 1.50x, relying on incremental equity contributions committed by the sponsors to offset potential construction cost overruns.
Resilient Cash Flow - Under a combination of stressed LIBORs, increased capital expenditure and conservative plant availability, the Fitch rating case projects a DSCR profile averaging 1.81x with a minimum of 1.51x. A robust 2.48x project life coverage ratio in Fitch's rating case further demonstrates Cameron's strong credit profile.

Strong Compared to Peers: Cameron's combined strengths make its credit profile strong compared to Fitch-rated LNG peers. Comparable projects may share some but not all of Cameron's attributes including a strong completion guarantee, long PPA tail, no merchant risk, and no exposure to cost-variability. Some Fitch 'A' rated projects have higher DSCRs compared to Cameron, but lack the revenue certainty that Cameron has through its long-term tolling agreements.

RATING SENSITIVITIES

Positive/Negative - Counterparty Risk: Downgrade of any sponsor through project completion could result in a downgrade of Cameron. Upgrade or downgrade of any toller would result in a commensurate change of the project's rating.

Negative - Variable Operating Performance: Unstable plant performance that reduces tariff payments could result in a downgrade.

Negative - Increasing Debt Burden: LIBOR that is persistently higher than what is modeled in Fitch's rating case financial analysis, materially reducing DSCRs, would result in a downgrade.

Negative - Completion Challenges: Material delays, cost overruns or performance shortfalls resulting in reduced financial cushion may put pressure on the rating.

CREDIT UPDATE

The project is on track to be completed no later than the substantial completion date of November 2018 and sufficient funding remains for completion. While expected to be complete by the substantial completion date, completion risk is mitigated by the sponsors' guarantee to support debt repayment if Cameron is not completed by the long-stop date of September 2021 (subject to permitted delays).

Cameron has achieved total project progress of approximately 30% through November 2015, compared to a forecast of 28%, with engineering (65% complete), procurement (46% complete), and construction (6% complete) works advancing. Cameron is making progress on critical path items, which mitigates delay and cost risks. Major equipment has been procured and delivery dates have been scheduled for 2016. Geotechnical risk has been minimized as all excavating work for the project is complete.

Cameron is required to meet ongoing conditions set forth by the Federal Energy Regulatory Commission (FERC) in their initial approval of the project. The latest FERC inspection was successfully completed in October 2015. In September, the Department of Energy denied the Sierra Club's request for rehearing of its final order authorizing Cameron to export LNG to countries without a free trade agreement with the Unites States. Regulatory oversight and additional permitting are not expected to delay the project, but will be monitored as construction works increase.

Cameron remains on schedule to complete the project within budget, with spending approximately 2.2% ahead of the forecast as of November. Spending is consistent with the project being slightly ahead of schedule. Risk surrounding cost variability is viewed as minimal as the majority of key items have been invoiced.