Fitch downgrades New Fortress credit rating to junk

Fitch Ratings’ decision to downgrade New Fortress Energy Inc.’s Long-Term Issuer Default Rating was influenced by several factors, including the company’s struggle to secure constructive contracts in Puerto Rico.

By The Star Staff

Fitch Ratings has downgraded New Fortress Energy Inc.’s (NFE) Long-Term Issuer Default Rating (IDR) from ‘B-’ to ‘CCC’, which is considered speculative or junk.

The decision was influenced by several factors, including the company’s inability to secure constructive contracts in Puerto Rico.

The downgrade has removed the rating from Rating Watch Negative (RWN). Fitch has also downgraded NFE’s $2.7 billion in 12% senior secured notes due in 2029, issued by NFE Financing LLC, as well as its term loan B, to ‘CCC’ with a Recovery Rating of ‘RR4’, down from ‘B-’/’RR4’. Additionally, Fitch downgraded both the 6.50% senior secured notes maturing in September 2026 and the 8.75% senior secured notes maturing in March 2029 to ‘CCC-’/’RR5’, lowering them from ‘CCC+’/’RR5’.

The downgrade reflects Fitch’s assessment of heightened execution risk associated with NFE reaching its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) target for 2025, which is essential for refinancing debt maturing in 2026 and 2027. The rating agency expressed concern over the delayed filing of the 10-Q.

Among the reasons for the downgrade, Fitch noted that high interest expenses, averaging around $900 million over the next three years, restrict financial flexibility. Fitch projects that EBITDA interest coverage will fall below 1.0x during this period. NFE indicated that it retained some $400 million in cash from the sale of its Jamaica asset, which Fitch views positively. However, due to an amendment to the credit facility linked to that asset sale, covenants now limit the amount of cash the company can use to repurchase the 2026 notes, except for payments that avoid springing maturities.

If the approximately $500 million in 6.5% senior secured notes due in September 2026 are not paid by July 31, 2026 -- 60 days before their maturity -- this would trigger around $2.2 billion in additional springing maturities. Under Fitch’s rating case, the company is expected to face a cash shortfall in 2026, partly due to the high costs of recent financings. Fitch’s assumptions are more conservative than management’s, reflecting significantly lower cash flows from Puerto Rico and slower development in Brazil, though some capital expenditures can potentially be deferred, particularly regarding payments for FLNG2 (floating liquefied natural gas) construction.

NFE’s recent results have fallen short of Fitch’s previous expectations. The company’s EBITDA for the quarter was over 20% lower than Fitch’s estimates. Initial amendments to a Puerto Rico contract regarding a re-contracting window, followed by NFE’s exclusion from the shortlist for a temporary power auction, have increased uncertainty regarding the company’s ability to achieve its 2025 projections. Furthermore, the absence of a 10-Q for the period ending March 31 of this year adds to this uncertainty. The developments come on the heels of weaker-than-expected results under Fitch’s calculations, which exclude excess gas sales.

In Brazil, two primary assets, CELBA2 and the Portocem power plants, are still under construction. Fitch estimates that Brazil will account for about 30% of NFE’s EBITDA from 2025 to 2027, with free cash flow projected to be negative over the next three years. Start-up risks associated with smaller projects remain a concern.

Fitch also emphasized the firm’s struggle to secure constructive contracts locally. NFE is the parent company of Genera PR, the private operator of the local utility’s power plants. Puerto Rico is NFE’s largest market and is expected to contribute over 50% of total EBITDA during the forecast period. The islandwide gas supply contract expires this month. While NFE has advantages as an incumbent operator in the power gas supply sector, Fitch indicates that the company may not be well-positioned to win a substantial bid given its omission from the shortlist in the temporary power auction.

Based on updated assumptions, Fitch projects that NFE’s leverage will exceed 10.0x from 2025 to 2027. Leverage remains high, even after the Jamaica asset sale, due to debt-funded capital expenditures related to the development of the FLNG2 liquefaction unit and the completion of projects in Brazil. In the absence of further asset sales, any significant reduction in leverage will require favorable contracts in Puerto Rico. Moreover, the receipt of Federal Emergency Management Agency proceeds, which could be a crucial source of cash, appears increasingly uncertain at this time, Fitch noted.