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Freeport LNG shopping long-term project bond for train 2

FreeportLNG is marketing a long-term project bond to raise capital for the second trainof its LNG liquefaction and export terminal on Quintana Island near Freeport,Texas.

Thedeal, originally slatedfor the first quarter, is now on track for a mid-July launch, according tomultiple sources. It would be part of Freeport's program to refinance up to $8billion in mini-perm debt. The proposed issuance was addressed byTerry Pratt, global infrastructure ratings director at S&P Global Ratings,in a panel presentation July 7. A spokesperson for Freeport said a roadshow isunderway to shop the issuance, and the intended launch timing was confirmedwith other sources close to the deal.

Theproject company's proposed senior secured notes would be due in 2038. Freeportdelayed its issuance on the heels of depressed commodity prices, energy marketvolatility and dampened investor sentiment as crude prices dipped below $30 abarrel in January.

"Theway that the transaction is planned … is that Freeport has secured all thefunding it needs to complete the project. But it does plan to take out creditfacility draws during construction," said Pratt, who indicated that histeam has reviewed the project's transaction structure with the company's legaladvisers.

Freeport'strain 2, also known as LNG Liquefaction 2, or FLIQ2, "has arranged astrong technology and construction package to achieve completion to performancetargets within schedule and budget," Pratt and his colleague MichaelFerguson said in a June 28 S&P Global Ratings note.

Basecase and average debt service coverage ratios for FLIQ2 are 1.81x and 1.99x,respectively, the duo noted in the report. The debt service coverage ratio is ameasure of cash flow available to pay current debt obligations.

FLIQ2is under construction along with the first LNG train and has an off-takeagreement with BP Energy Co.,whose parent BP Corp. NorthAmerica Inc. will guarantee its obligations.

Inspite of a gas supply glutand constrained capital market deal flow, LNG developers are well-positioned toissue desirably priced longer-term bonds, Raymond James Financial Inc. analystLuana Siegfried noted.

"It'sa very secure market because of off-take agreements that are take or pay,"Siegfried said. "When an LNG project is complete or nearing completion,and when [the developer] has a solid customer base, then it's easier than foran oil company."

S&PGlobal Ratings and Fitch Ratings have accorded FLIQ2 ratings of BBB with stableoutlooks.

FreeportLNG is the project company of Freeport LNGExpansion LP, which is an affiliate of FreeportLNG Development LP.

S&P GlobalRatings and S&P Global Market Intelligence are owned by S&P Global Inc.