By The Star Staff
Fitch Ratings has downgraded the natural gas project developer New Fortress Energy Inc.’s (NFE) Long-Term Issuer Default Rating to ‘B+’ from ‘BB-’ and has placed it on Rating Watch Negative.
The senior secured debt of NFE, which has several natural gas projects in Puerto Rico, has been downgraded to ‘B+’/’RR4’ from ‘BB-’/’RR4’. ‘RR4’ denotes average recovery in the event of default.
The downgrade and Negative Watch reflect NFE’s significant refinancing risk and highly constrained liquidity position given its capital-intensive growth strategy, including the Puerto Rico projects.
Weaknesses include higher than previously expected EBITDA-leverage estimated to be greater than 6.0x in 2024-2025 under Fitch’s rating case, and commodity-linked pricing in the company’s natural gas supply contracts. Concentration of cash flows in Latin America and ongoing execution risk including the development of complex liquefied natural gas production assets further increase business risk.
The competitive positioning of NFE’s terminals offer long-term opportunities for natural gas supply and power plant development. Cash flow stability is expected to increase as the company executes more contracts, underpinned by some take-or-pay agreements and minimum volume commitments.
However, NFE faces significant maturities over 2025-2026 and currently liquidity is highly constrained with the revolver fully drawn. NFE’s term loan B ($774 million outstanding) and revolving credit facility ($1.0 billion) have springing maturities that could be triggered by July 16, 2025 if the company’s 6.75% senior secured notes ($875 million) are not refinanced by that date and the 6.5% senior secured notes ($1.5 billion) are not refinanced by July 31, 2026, each 60 days before their maturity dates.
NFE has obtained a backstop agreement for refinancing its 2025 maturity, which partially addresses that risk. Failure to refinance the upcoming maturities on reasonable terms and in a timely manner, and generate adequate liquidity for NFE’s working capital requirements and ongoing growth projects, could result in further downgrades.
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