The downgrades came after NFE reported adjusted EBITDA of $120 million in the second quarter of 2024, below its estimate of $275 million. (Source: Shutterstock)
Fitch Ratings downgraded New Fortress Energy Inc.'s (NFE) issuer default rating (IDR) and senior secured debt, citing “significant refinancing risk and highly constrained liquidity position given its capital-intensive growth strategy.”
NFE’s long-term IDR was downgraded to 'B+' from 'BB-' and placed on ‘rating watch negative.’ NFE’s senior secured debt was downgraded to 'B+'/'RR4' from 'BB-'/'RR4'. 'RR4' denotes average recovery in the event of default, Fitch said Aug. 12 in a research report.
The downgrades came after NFE reported adjusted EBITDA of $120 million in the second quarter of 2024, below its estimate of $275 million. The lower EBITDA figure was mainly related to delays from bringing its Fast LNG 1 (FLNG 1) project into service, NFE said Aug. 9 in its second quarter financial press release.
FLNG 1 was originally slated to be online in April, NFE CEO Wesley Edens said Aug. 9 during a webcast with analysts.
New Fortress estimates its full calendar year adjusted EBITDA will be around $1.4 billion to $1.5 billion in 2024 and around $1.3 billion in 2025, the company said in its second-quarter 2024 webcast presentation.
U.S.-based New Fortress Energy develops modular liquefaction facilities. NFE’s FLNG design pairs advancements in modular, midsize liquefaction technology with jack up rigs, semi-submersible rigs or similar marine floating infrastructure.
The combination allows for lower cost and faster deployment than other greenfield alternatives. Semi-permanently moored floating storage units (FSUs) provide LNG storage alongside the floating liquefaction infrastructure and can be used to tap into otherwise stranded gas, according to NFE.
Fitch said financial weaknesses, such as commodity-linked pricing in New Fortress’ natural gas contracts, factored in strongly on its rating decisions. And, execution risks from projects in Latin America, including the development of LNG production assets, contributed.
NFE’s long-term debt was $7.4 billion at the end of second-quarter 2024. Total liabilities and shareholder’s equity were $11.4 billion.
Capex exceeded Fitch’s expectations in 2023 at more than $3 billion, funded through free cash flow, debt and asset sales. And over the next two years, capex could reach up to $2 billion if NFE pursues development of power plant projects in Brazil and Nicaragua, Fitch said.
“We expect almost $4 billion of enterprise value in 2026, which is a simple eight times the $500 million of contracted EBITDA,” NFE managing director Andrew Dete said during NFE’s webcast. “On that $4 billion of enterprise value, we'll have about $1 billion of long-term asset level leverage, which we're using for construction.”
On a positive note, Fitch said the competitive positioning of NFE’s terminals offer long-term opportunities for gas supply and power plant development. Fitch expects cash flow stability to increase as NFE executes more contracts, “underpinned by some take-or-pay agreements and minimum volume commitments.”
NFE’s portfolio was built up with $8 billion in investments, Edens said, and now the company’s goal is to grow organically with little to no additional capex.
“The deployment of the FLNG asset represents a watershed event for us with respect to our investment activities, and now we are singularly focused on organic earnings and free cash flow.”
Edens said investments have been largely in the downstream sector, which allows NFE to access large and growing markets. Mexico and Brazil are on top of that list, but also Puerto Rico, Central America and Jamaica—countries also with incremental demand, Edens said.
Complex capital projects
Located offshore Altamira, Mexico, NFE’s FLNG 1 will have a production capacity of 1.4 million tonnes per annum (mtpa). The project will utilize the country’s Federal Electricity’s (CFE) firm pipeline transportation capacity on the Sur de Texas-Tuxpan Pipeline to receive feedgas volumes.
FLNG 1 completes the vertical integration of New Fortress Energy’s LNG portfolio and will play a pivotal role in supplying clean LNG to the company’s downstream terminal customers, NFE said in the release. NFE expects to deploy additional units over the next two years.
In July 2024, NFE completed its initial FLNG project, following the achievement of first LNG. NFE expects to deliver its first cargo from the project in August 2024.
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The first cargo refers to the estimated date NFE expects LNG cargo sales for the project. NFE said full commercial operations “may occur substantially later than the date of first cargo.”
A planned FLNG 2 will also have a capacity of 1.4 mtpa. FLNG 2 will be located onshore at the existing Altamira LNG import facility and similarly source feed gas from the Sur de Texas-Tuxpan Pipeline. Infrastructure already existent at the FLNG 2 facility includes two 150,000 cu. m storage tanks, deepwater marine berth and access to local gas and power networks.
NFE’s FLNG 1 and FLNG 2 projects are located in Mexico and require U.S. Department of Energy (DOE) approvals to export to non-FTA countries since they source U.S. feed gas.
New Fortress has already obtained a U.S. Customs and Border Protection ruling to transport LNG in the U.S. and Puerto Rico.
Around $1 billion of funding has been spent or secured for the construction of NFE’s FLNG 2. The rating agency said NFE could catch even more costs from permitting or construction delays.
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