The parent company of frequently offline Freeport LNG export plant has had its credit score downgraded to junk territory, Fitch Ratings reported July 24.

The roughly 2 Bcf/d plant at Freeport, Texas, was most recently offline while doing post-Hurricane Beryl facility checks. The plant resumed tanker-loading July 21 with LNG from one of three trains. The other two trains are expected to return to service in August.

The credit downgrade to CCC+ from B- on Freeport LNG Investments LLLP (FLNGI) was to its issuer-default rating (IDR).

The rating is in Fitch’s “substantial credit risk” territory that Fitch describes as having a “very low margin for safety. Default is a real possibility.”

FLNGI holds company founder Michael Smith's 55.25% limited partnership interest in Freeport LNG Development LP.

Heather Browne, Freeport LNG director of communications, told Hart Energy the company had no comment about “this specific downgrade or notice.”

“It is important to note, however, that all of Freeport LNG’s subsidiaries’ debt remains investment grade," Browne said.

FLNGI's senior secured debt score remained above junk territory but was lowered to B- from B in the “highly speculative” category.

Fitch describes this as “material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.”

The next two levels are “very high levels of credit risk” (CC) and “near default” (C).

Frequently offline

The credit-rating firm reported July 24 that the “downgrade reflects FLNGI's challenged liquidity position and weak operating performance.

“Debt-service reserve[s] are almost completely depleted and Fitch expects an equity cure will be required in [this quarter], the third of five [in] total available for the life of the loans.”

Fitch described FLNGI as being financially underwater. “Over the last nine quarters, owner-equity cures and debt-service reserves accounted for over 90% of total debt service—110% of principal plus interest payments due, given the 1.10x financial covenant—at FLNGI.”

Freeport LNG was offline for more than eight months in 2022 into early 2023, flooding the U.S. natural gas market with an excess of gas in storage without a means of export, that eventually totaled more than 400 Bcf.

The excess remains in storage, contributing to a prompt-month price on July 25 of $2.09/MMBtu on CME Group and a strip of less than $3/MMBtu.

The plant was offline again in September 2023, in January 2024 and was shuttered on July 7 in advance of Beryl’s landfall at Matagorda Beach, about 40 miles to the plant’s west, the morning of July 8.

Service resumed

Freeport resumed service from one train on July 21, loading the tanker Axios II, which is now in the Atlantic Ocean heading to Rotterdam, Netherlands, according to VesselFinder.

Gaslog Wales was loaded on July 22 and is currently heading to Kawasaki, Japan.

The tanker LNG Rottentrot loaded July 24 and was heading to Jamaica. Another tanker, Cool Runner, loaded and left on July 25 without a buyer yet for its load as of press time, posting its destination as “for orders.”

Five more LNG tankers were anchored offshore the Freeport LNG terminal awaiting queuing. At press time, there were no tankers in berth at the plant.

In some cases, tankers’ drafts prevent them from entering the port.

Port Freeport has a 39-ft draft restriction since July 17 when shoaling was identified in multiple locations in the waterway, reducing the channel’s depth.

‘Significant operational setbacks’

Fitch Ratings reported July 25 that the Freeport LNG facility “has had significant operational setbacks, including the flashing and fire incident in June 2022 that caused several months of shutdowns; a motor failure in January 2024; and most recently, the Hurricane Beryl-related shutdown.”

The downtimes meant “there was no production in [second-half 2022], around 85% of schedule in 2023 and 64% of schedule in the first five months of 2024, resulting in minimal distributions to FLNGI.”

“Notably, production in the last three quarters of 2023 was approximately 95% of target before the force majeure events of 2024.”

The ratings firm projected that “a slower-than-expected recovery from Hurricane Beryl could result in a highly diminished liquidity position at FLNGI.”

It added that one option to FLNGI is to “obtain a waiver from [its] lenders, similar to the one provided in 2022, that added up to four additional equity cures covering the 2023 payments.”

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