Investing.com -- New Fortress Energy Inc. (NASDAQ:NFE) has seen a downgrade in its issuer credit rating from 'B+' to 'B' by S&P Global Ratings, following concerns over the company's liquidity and high leverage. The downgrade also reflects the negative outlook on the company's financial health.
The company has plans to increase its term loan B, which is due in October 2028. The additional funds will be used to refinance its term loan A, due in July 2027, and to finance part of the construction of its FLNG (OL:FLNG) 2 project. However, the company's credit measures and liquidity are expected to face significant pressure over the next year.
The credit rating of NFE's senior secured term loan B and its senior secured notes due in 2029 (exchanged notes) have also been downgraded to 'B' from 'B+'. Meanwhile, the ratings on the company's senior secured notes due in 2026 and 2029 (legacy notes) have been lowered to 'B-' from 'B'. Despite these downgrades, the recovery ratings on the debt and notes remain unchanged, indicating that lenders could expect a recovery between 50%-70% on the debt and 10%-30% on the legacy notes in case of default.
The downgrade also considers the company's financial ratios, which are weaker than expected. The company's expected EBITDA for year-end 2024 is estimated to be in the range of $900 million to $1 billion, weaker than previously forecasted. This is mainly due to the delayed receipt of a $500 million to $659 million payment from the Federal Emergency Management Agency (FEMA), which the company expects to receive in the second quarter of 2025.
The company's liquidity is constrained, and its financial flexibility is expected to be limited in 2025. Although the debt exchange completed in the fourth quarter of 2024 provided some liquidity and extended some of the company's debt maturities, the company's $1 billion revolver is fully drawn. This will require a combination of asset sales and the realization of the company's $1.2 billion forecast to free up revolver capacity and reduce debt.
NFE's projected capital spending for 2025 is estimated to be between $800 million and $950 million. This could result in negative free cash flow in the range of $370 million to $520 million, which could be mostly met with the term loan B upsize or some targeted asset sales.
The company's credit measures are weak, and its liquidity is still constrained, which could negatively impact its financial risk profile for the next 12 months. The company will need to refinance the remaining 2026 notes and manage some execution risk through 2026 for the construction of FLNG 2.
The company's ability to improve its credit profile is contingent on several factors. These include meeting the 2025 forecast, receiving the FEMA payment, and successfully refinancing the 2026 notes. The company also needs to manage the construction costs of FLNG 2 and avoid significant project delays.
Environmental factors also play a role in the credit rating analysis of NFE. The company operates LNG assets, terminal facilities, and natural gas power plants globally. Although gas generation has a place in the energy transition, NFE remains vulnerable to changes in demand patterns for new gas-fired generation and global regulation.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.