Cheniere Energy, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Debt

Debt

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Debt

DEBT

As of September 30, 2019 and December 31, 2018, our debt consisted of the following (in millions):



	September 30,			December 31,
	2019			2018
Long-term debt:
SPL
5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”)	$	2,000		$	2,000
6.25% Senior Secured Notes due 2022 (“2022 SPL Senior Notes”)	1,000			1,000
5.625% Senior Secured Notes due 2023 (“2023 SPL Senior Notes”)	1,500			1,500
5.75% Senior Secured Notes due 2024 (“2024 SPL Senior Notes”)	2,000			2,000
5.625% Senior Secured Notes due 2025 (“2025 SPL Senior Notes”)	2,000			2,000
5.875% Senior Secured Notes due 2026 (“2026 SPL Senior Notes”)	1,500			1,500
5.00% Senior Secured Notes due 2027 (“2027 SPL Senior Notes”)	1,500			1,500
4.200% Senior Secured Notes due 2028 (“2028 SPL Senior Notes”)	1,350			1,350
5.00% Senior Secured Notes due 2037 (“2037 SPL Senior Notes”)	800			800
Cheniere Partners
5.250% Senior Notes due 2025 (“2025 CQP Senior Notes”)	1,500			1,500
5.625% Senior Notes due 2026 (“2026 CQP Senior Notes”)	1,100			1,100
4.500% Senior Notes due 2029 (“2029 CQP Senior Notes”)	1,500			—
2016 CQP Credit Facilities	—			—
CQP Credit Facilities executed in 2019 (“2019 CQP Credit Facilities”)	—			—
CCH
7.000% Senior Secured Notes due 2024 (“2024 CCH Senior Notes”)	1,250			1,250
5.875% Senior Secured Notes due 2025 (“2025 CCH Senior Notes”)	1,500			1,500
5.125% Senior Secured Notes due 2027 (“2027 CCH Senior Notes”)	1,500			1,500
4.80% Senior Secured Notes due 2039 (“4.80% CCH Senior Notes”)	727			—
CCH Credit Facility	5,341			5,156
CCH HoldCo II
11.0% Convertible Senior Secured Notes due 2025 (“2025 CCH HoldCo II Convertible Senior Notes”)	1,578			1,455
Cheniere
4.875% Convertible Unsecured Notes due 2021 (“2021 Cheniere Convertible Unsecured Notes”)	1,247			1,218
4.25% Convertible Senior Notes due 2045 (“2045 Cheniere Convertible Senior Notes”)	625			625
$1.25 billion Cheniere Revolving Credit Facility (“Cheniere Revolving Credit Facility”)	—			—
Unamortized premium, discount and debt issuance costs, net	(723		)	(775		)
Total long-term debt, net	30,795			28,179

Current debt:
$1.2 billion SPL Working Capital Facility (“SPL Working Capital Facility”)	—			—
$1.2 billion CCH Working Capital Facility (“CCH Working Capital Facility”)	—			168
Cheniere Marketing trade finance facilities	11			71
Total current debt	11			239

Total debt, net	$	30,806		$	28,418

2019 Debt Issuances and Terminations

4.80% CCH Senior Notes

In September 2019, CCH issued an aggregate principal amount of $727 million of the 4.80% CCH Senior Notes in a private placement conducted pursuant to Section 4(a)(2) of the Securities Act. The 4.80% CCH Senior Notes were issued under an indenture dated as of September 27, 2019 (the “2019 CCH Indenture”) pursuant to a note purchase agreement with the purchasers party thereto and Allianz Global Investors GmbH, as noteholder consultant, originally entered into in June 2019. The 4.80% CCH Senior Notes are jointly and severally guaranteed by each of CCH’s subsidiaries CCL, CCP and Corpus Christi Pipeline GP, LLC

(each a “CCH Guarantor” and collectively, the “CCH Guarantors”). The proceeds of the notes were used to prepay a portion of the outstanding balance of the CCH Credit Facility, resulting in the recognition of debt extinguishment costs of $13 million for the three and nine months ended September 30, 2019 relating to the write off of unamortized debt discounts and issuance costs. The 4.80% CCH Senior Notes accrue interest at a fixed rate of 4.80% per annum and are fully amortizing according to a fixed sculpted amortization schedule with semi-annual payments of interest starting December 2019 and semi-annual payments of principal starting June 2027. The 4.80% CCH Senior Notes have a weighted average life of 15 years.

The 4.80% CCH Senior Notes are CCH’s senior secured obligation, ranking senior in right of payment to any and all of CCH’s future indebtedness that is subordinated to the 4.80% CCH Senior Notes and equal in right of payment with CCH’s other existing and future indebtedness that is senior and secured by the same collateral securing the 4.80% CCH Senior Notes. The 4.80% CCH Senior Notes are secured by a first-priority security interest in substantially all of CCH’s and the CCH Guarantors’ assets.

At any time prior to June 30, 2039, CCH may redeem all or a part of the 4.80% CCH Senior Notes at a redemption price equal to the “make-whole” price set forth in the 2019 CCH Indenture, plus accrued and unpaid interest, if any, to the date of redemption. CCH also may at any time on or after June 30, 2039, redeem the 4.80% CCH Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 4.80% CCH Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption.

The 2019 CCH Indenture contains customary terms and events of default and certain covenants that, among other things, limit CCH’s ability and the ability of CCH’s restricted subsidiaries to incur additional indebtedness or issue preferred stock, make certain investments or pay dividends or distributions on membership interests or subordinated indebtedness or purchase, redeem or retire membership interests, sell or transfer assets, including membership or partnership interests of CCH’s restricted subsidiaries, restrict dividends or other payments by restricted subsidiaries to CCH or any of CCH’s restricted subsidiaries, incur liens, enter into transactions with affiliates, dissolve, liquidate, consolidate, merge, sell or lease all or substantially all of the properties or assets of CCH and its restricted subsidiaries taken as a whole or permit any CCH Guarantor to dissolve, liquidate, consolidate, merge, sell or lease all or substantially all of its properties and assets. The 2019 CCH Indenture covenants are subject to a number of important limitations and exceptions.

2029 CQP Senior Notes

In September 2019, Cheniere Partners issued an aggregate principal amount of $1.5 billion of the 2029 CQP Senior Notes, which are jointly and severally guaranteed by each of Cheniere Partners’ subsidiaries other than SPL and, subject to certain conditions governing its guarantee, Sabine Pass LP (the “CQP Guarantors”). The proceeds of the offering were used to prepay the outstanding balance of the $750 million term loan under the 2019 CQP Credit Facilities (“CQP Term Facility”) and for general corporate purposes, including funding future capital expenditures in connection with the construction of Train 6 at the SPL Project, resulting in the recognition of debt modification and extinguishment costs of $13 million for the three and nine months ended September 30, 2019. As of September 30, 2019, only the $750 million revolving credit facility (“CQP Revolving Facility”), all of which is undrawn, remains as part of the 2019 CQP Credit Facilities.

Borrowings under the 2029 CQP Senior Notes accrue interest at a fixed rate of 4.500% per annum, and interest on the 2029 CQP Senior Notes is payable semi-annually in cash in arrears. The 2029 CQP Senior Notes are governed by the same base indenture as the 2025 CQP Senior Notes and the 2026 CQP Senior Notes (the “CQP Base Indenture”) and are further governed by the Third Supplemental Indenture (together with the CQP Base Indenture, the “2029 CQP Notes Indenture”), which contains customary terms and events of default and certain covenants that, among other things, limit the ability of Cheniere Partners and the CQP Guarantors to incur liens and sell assets, enter into transactions with affiliates, enter into sale-leaseback transactions and consolidate, merge or sell, lease or otherwise dispose of all or substantially all of the applicable entity’s properties or assets.

At any time prior to October 1, 2024, Cheniere Partners may redeem all or a part of the 2029 CQP Senior Notes at a redemption price equal to 100% of the aggregate principal amount of the 2029 CQP Senior Notes redeemed, plus the “applicable premium” set forth in the 2029 CQP Notes Indenture, plus accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to October 1, 2022, Cheniere Partners may redeem up to 35% of the aggregate principal amount of the 2029 CQP Senior Notes with an amount of cash not greater than the net cash proceeds from certain equity offerings at a redemption price equal to 104.5% of the aggregate principal amount of the 2029 CQP Senior Notes redeemed, plus accrued and unpaid interest, if any, to the date of redemption. At any time on or after October 1, 2024 through the maturity date of October 1, 2029, Cheniere

Partners may redeem the 2029 CQP Senior Notes, in whole or in part, at the redemption prices set forth in the 2029 CQP Notes Indenture.

The 2025 CQP Senior Notes, the 2026 CQP Senior Notes and the 2029 CQP Senior Notes (collectively, the “CQP Senior Notes”) are Cheniere Partners’ senior obligations, ranking equally in right of payment with Cheniere Partners’ other existing and future unsubordinated debt and senior to any of its future subordinated debt. In the event that the aggregate amount of Cheniere Partners’ secured indebtedness and the secured indebtedness of the CQP Guarantors (other than the CQP Senior Notes or any other series of notes issued under the CQP Base Indenture) outstanding at any one time exceeds the greater of (1) $1.5 billion and (2) 10% of net tangible assets, the CQP Senior Notes will be secured to the same extent as such obligations under the 2019 CQP Credit Facilities. The obligations under the 2019 CQP Credit Facilities are secured on a first-priority basis (subject to permitted encumbrances) with liens on (1) substantially all the existing and future tangible and intangible assets and rights of Cheniere Partners and the CQP Guarantors and equity interests in the CQP Guarantors (except, in each case, for certain excluded properties set forth in the 2019 CQP Credit Facilities) and (2) substantially all of the real property of SPLNG (except for excluded properties referenced in the 2019 CQP Credit Facilities). The liens securing the CQP Senior Notes, if applicable, will be shared equally and ratably (subject to permitted liens) with the holders of other senior secured obligations, which include the 2019 CQP Credit Facilities obligations and any future additional senior secured debt obligations.

In connection with the closing of the 2029 CQP Senior Notes offering, Cheniere Partners and the CQP Guarantors entered into a registration rights agreement (the “CQP Registration Rights Agreement”). Under the CQP Registration Rights Agreement, Cheniere Partners and the CQP Guarantors have agreed to file with the SEC and cause to become effective a registration statement relating to an offer to exchange any and all of the 2029 CQP Senior Notes for a like aggregate principal amount of debt securities of Cheniere Partners with terms identical in all material respects to the 2029 CQP Senior Notes sought to be exchanged (other than with respect to restrictions on transfer or to any increase in annual interest rate), within 360 days after the notes issuance date of September 12, 2019. Under specified circumstances, Cheniere Partners and the CQP Guarantors have also agreed to cause to become effective a shelf registration statement relating to resales of the 2029 CQP Senior Notes. Cheniere Partners will be obligated to pay additional interest on the 2029 CQP Senior Notes if it fails to comply with its obligation to register the 2029 CQP Senior Notes within the specified time period.

2016 CQP Credit Facilities

In May 2019, the remaining commitments under the 2016 CQP Credit Facilities were terminated. There were no write-offs of debt issuance costs associated with the termination of the 2016 CQP Credit Facilities.

2019 CQP Credit Facilities

In May 2019, Cheniere Partners entered into the 2019 CQP Credit Facilities, which consisted of the $750 million CQP Term Facility, which was prepaid and terminated upon issuance of the 2029 CQP Senior Notes in September 2019, and the $750 million CQP Revolving Facility. Borrowings under the 2019 CQP Credit Facilities will be used to fund the development and construction of Train 6 of the SPL Project and for general corporate purposes, subject to a sublimit, and the 2019 CQP Credit Facilities are also available for the issuance of letters of credit.

Loans under the 2019 CQP Credit Facilities accrue interest at a variable rate per annum equal to LIBOR or the base rate (equal to the highest of the prime rate, the federal funds effective rate, as published by the Federal Reserve Bank of New York, plus 0.50%, and the adjusted one-month LIBOR plus 1.0%), plus the applicable margin. Under the CQP Term Facility, the applicable margin for LIBOR loans was 1.50% per annum, and the applicable margin for base rate loans was 0.50% per annum. Under the CQP Revolving Facility, the applicable margin for LIBOR loans is 1.25% to 2.125% per annum, and the applicable margin for base rate loans is 0.25% to 1.125% per annum, in each case depending on the then-current rating of Cheniere Partners. Interest on LIBOR loans is due and payable at the end of each applicable LIBOR period (and at the end of every three-month period within the LIBOR period, if any), and interest on base rate loans is due and payable at the end of each calendar quarter.

The 2019 CQP Credit Facilities mature on May 29, 2024. Any outstanding balance may be repaid, in whole or in part, at any time without premium or penalty, except for interest rate breakage costs. The 2019 CQP Credit Facilities contain conditions precedent for extensions of credit, as well as customary affirmative and negative covenants, and limit Cheniere Partners’ ability to make restricted payments, including distributions, to once per fiscal quarter and one true-up per fiscal quarter as long as certain conditions are satisfied.

The 2019 CQP Credit Facilities are unconditionally guaranteed and secured by a first priority lien (subject to permitted encumbrances) on substantially all of Cheniere Partners’ and the CQP Guarantors’ existing and future tangible and intangible assets and rights and equity interests in the CQP Guarantors (except, in each case, for certain excluded properties set forth in the 2019 CQP Credit Facilities).

CCH Credit Facility

As part of the capital allocation framework announced in June 2019, we prepaid $70 million of outstanding borrowings under the CCH Credit Facility during the three and nine months ended September 30, 2019. The prepayment resulted in the recognition of debt extinguishment costs of $1 million for the three and nine months ended September 30, 2019.

Credit Facilities

Below is a summary of our credit facilities outstanding as of September 30, 2019 (in millions):



	SPL Working Capital Facility (1)		2019 CQP Credit Facilities		CCH Credit Facility		CCH Working Capital Facility		Cheniere Revolving Credit Facility
Original facility size	$	1,200	$	1,500	$	8,404	$	350	$	750
Incremental commitments	—		—		1,566		850		500
Less:
Outstanding balance	—		—		5,341		—		—
Commitments prepaid or terminated	—		750		4,629		—		—
Letters of credit issued	414		—		—		583		876
Available commitment	$	786	$	750	$	—	$	617	$	374

Interest rate on available balance	LIBOR plus 1.75% or base rate plus 0.75%		LIBOR plus 1.25% - 2.125% or base rate plus 0.25% - 1.125%		LIBOR plus 1.75% or base rate plus 0.75%		LIBOR plus 1.25% - 1.75% or base rate plus 0.25% - 0.75%		LIBOR plus 1.75% - 2.50% or base rate plus 0.75% - 1.50%
Weighted average interest rate of outstanding balance	n/a		n/a		3.79%		n/a		n/a
Maturity date	December 31, 2020		May 29, 2024		June 30, 2024		June 29, 2023		December 23, 2022


(1)	The SPL Working Capital Facility was amended in May 2019 in connection with commercialization and financing of Train 6 of the SPL Project. All terms of the SPL Working Capital Facility substantially remained unchanged.

Convertible Notes

Below is a summary of our convertible notes outstanding as of September 30, 2019 (in millions):



	2021 Cheniere Convertible Unsecured Notes			2025 CCH HoldCo II Convertible Senior Notes			2045 Cheniere Convertible Senior Notes
Aggregate original principal	$	1,000		$	1,000		$	625
Debt component, net of discount and debt issuance costs	$	1,181		$	1,564		$	312
Equity component	$	210		$	—		$	194
Interest payment method	Paid-in-kind			Paid-in-kind / cash (1)			Cash
Conversion by us (2)	—			(3)			(4)
Conversion by holders (2)	(5)			(6)			(7)
Conversion basis	Cash and/or stock			Stock			Cash and/or stock
Conversion value in excess of principal	$	—		$	—		$	—
Maturity date	May 28, 2021			May 13, 2025			March 15, 2045
Contractual interest rate	4.875		%	11.0		%	4.25		%
Effective interest rate (8)	8.4		%	12.0		%	9.4		%
Remaining debt discount and debt issuance costs amortization period (9)	1.7 years			1.0 years			25.5 years


(1)	Prior to the substantial completion of Train 2 of the CCL Project, interest was paid entirely in kind. Following substantial completion, the interest generally must be paid in cash; however, a portion of the interest may be paid in kind under certain specified circumstances.


(2)	Conversion is subject to various limitations and conditions.

(3)

Convertible on or after March 1, 2020, provided that our market capitalization is not less than $10.0 billion (“Eligible Conversion Date”). The conversion price is the lower of (1) a 10% discount to the average of the daily volume-weighted average price (“VWAP”) of our common stock for the 90 trading day period prior to the date notice is provided, and (2) a 10% discount to the closing price of our common stock on the trading day preceding the date notice is provided.


(4)	Redeemable at any time after March 15, 2020 at a redemption price payable in cash equal to the accreted amount of the 2045 Cheniere Convertible Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to such redemption date.


(5)	Initially convertible at $93.64 (subject to adjustment upon the occurrence of certain specified events), provided that the closing price of our common stock is greater than or equal to the conversion price on the conversion date.


(6)	Convertible on or after the six-month anniversary of the Eligible Conversion Date, provided that our total market capitalization is not less than $10.0 billion, at a price equal to the average of the daily VWAP of our common stock for the 90 trading day period prior to the date on which notice of conversion is provided.

(7)

Prior to December 15, 2044, convertible only under certain circumstances as specified in the indenture; thereafter, holders may convert their notes regardless of these circumstances. The conversion rate will initially equal 7.2265 shares of our common stock per $1,000 principal amount of the 2045 Cheniere Convertible Senior Notes, which corresponds to an initial conversion price of approximately $138.38 per share of our common stock (subject to adjustment upon the occurrence of certain specified events).


(8)	Rate to accrete the discounted carrying value of the convertible notes to the face value over the remaining amortization period.


(9)	We amortize any debt discount and debt issuance costs using the effective interest over the period through contractual maturity except for the 2025 CCH HoldCo II Convertible Senior Notes, which are amortized through the date they are first convertible by holders into our common stock.

Restrictive Debt Covenants

As of September 30, 2019, each of our issuers was in compliance with all covenants related to their respective debt agreements.

Interest Expense

Total interest expense, including interest expense related to our convertible notes, consisted of the following (in millions):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Interest cost on convertible notes:
Interest per contractual rate	$	65		$	60		$	191		$	176
Amortization of debt discount	10			9			29			25
Amortization of debt issuance costs	3			3			9			7
Total interest cost related to convertible notes	78			72			229			208
Interest cost on debt and finance leases excluding convertible notes	390			354			1,145			1,034
Total interest cost	468			426			1,374			1,242
Capitalized interest	(73		)	(205		)	(360		)	(589		)
Total interest expense, net	$	395		$	221		$	1,014		$	653

Fair Value Disclosures

The following table shows the carrying amount, which is net of unamortized premium, discount and debt issuance costs, and estimated fair value of our debt (in millions):



	September 30, 2019				December 31, 2018
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Senior notes (1)	$	20,978	$	23,091	$	19,466	$	19,901
2037 SPL Senior Notes (2)	791		909		791		817
4.80% CCH Senior Notes (2)	720		768		—		—
Credit facilities (3)	5,260		5,260		5,294		5,294
2021 Cheniere Convertible Unsecured Notes (2)	1,181		1,291		1,126		1,236
2025 CCH HoldCo II Convertible Senior Notes (2)	1,564		1,792		1,432		1,612
2045 Cheniere Convertible Senior Notes (4)	312		483		310		431

(1)

Includes 2021 SPL Senior Notes, 2022 SPL Senior Notes, 2023 SPL Senior Notes, 2024 SPL Senior Notes, 2025 SPL Senior Notes, 2026 SPL Senior Notes, 2027 SPL Senior Notes, 2028 SPL Senior Notes, 2025 CQP Senior Notes, 2026 CQP Senior Notes, 2029 CQP Senior Notes, 2024 CCH Senior Notes, 2025 CCH Senior Notes and 2027 CCH Senior Notes. The Level 2 estimated fair value was based on quotes obtained from broker-dealers or market makers of these senior notes and other similar instruments.


(2)	The Level 3 estimated fair value was calculated based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including our stock price and interest rates based on debt issued by parties with comparable credit ratings to us and inputs that are not observable in the market.

(3)

Includes SPL Working Capital Facility, 2016 CQP Credit Facilities, 2019 CQP Credit Facilities, CCH Credit Facility, CCH Working Capital Facility, Cheniere Revolving Credit Facility and Cheniere Marketing trade finance facilities. The Level 3 estimated fair value approximates the principal amount because the interest rates are variable and reflective of market rates and the debt may be repaid, in full or in part, at any time without penalty.

(4)

The Level 1 estimated fair value was based on unadjusted quoted prices in active markets for identical liabilities that we had the ability to access at the measurement date.