Fitch gives thumbs up to New Fortress Energy's cash flow prospectsFriday, November 26, 2021
Fitch Ratings has affirmed New Fortress Energy Inc (NFE)'s 'BB-' Long-Term Issuer Default Rating (IDR) and 'BB-'/'RR4' senior secured debt. The rating outlook is stable.
Fitch states that the ratings reflect NFE's increase in scope and scale while diversifying the counterparties under long-term contracts from the US$5.1-billion acquisitions of Hygo Energy Transition Ltd, Golar LNG Partners LP and power purchase agreements in Brazil.
It states, “Management's aggressive growth strategy has significant execution risk, with construction, regulatory and jurisdictional issues. The new assets increase the cash flow under long-term contracts. However, the pace of the development and completion of the projects dictates the improvement in business risk and cash flow stability.”
The ratings reflect NFE's aggressive growth strategy and execution risk, counterparty risk, and business risk associated with supply chain and logistics and commodities price exposure.
Fitch outlines that NFE's ratings are supported by the long-term contract profile underpinned by take-or-pay and minimum volume commitment components, which provide some cash flow stability.
NFE generates cash flow from selling liquefied natural gas (LNG) to customers in the power and industrial sectors. Additional cash flow comes from power sales from NFE owned power plants, and the LNG supplied to the plant.
Fitch estimates that by 2022, around 55 per cent of NFE cash flow will originate from about 45 customers with operations in Brazil (26 per cent ; BB-/Negative), Jamaica (15 per cent ; B+/Stable), Nicaragua (13 per cent ; B-/Stable), Mexico (nine per cent ; BBB-/Stable), and Puerto Rico (six per cent).
Although Fitch does not rate the off-takers, the agency estimates that its credit quality would either be linked to the sovereign, for government-related entities, or limited by the operating environment in which they operate.
It says that partially mitigating this risk is Fitch's expectation that the balance of the cash flow will originate from 20 customers operating in investment-grade countries such as Mexico (BBB-/Stable) and the United States (AAA/Negative).