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Cheniere Energy has secured a $250 million loan from GSO Capital Partners to provide liquidity for its LNG purchaser and transporter unit Cheniere Marketing. The company tapped Credit Suisse in February to explore options for Sabine Pass LNG, including an outright sale (PFR, 5/9), but because of the liquidity provided by the loan a sale won't be necessary.

"We were looking for options that would provide us with enough funding to allow us to continue our business plan of monetizing our capacity at the Sabine Pass facility," says Don Turkleson, cfo of Cheniere in Houston. "Their offer provides us sufficient liquidity for at least three years and we believe that they are an ideal fit and they also have other investments in the energy space, including natural gas."

Proceeds from the 10-year, 12% senior secured convertible loan will repay a $95 million bridge loan obtained in May and $135 million will fund a reserve account for payments

under Cheniere Marketing. Beginning in January of next year, Cheniere Marketing will make terminal use agreement payments of $21 million a month to Cheniere Energy Partners from the reserve account. "Now that we have solved our liquidity for the next several years, we will have more time to wait out the LNG markets in order to sign more TUA contracts or acquire LNG cargoes." The remaining loan balance will be used for general corporate purposes, including annual operating expenses for Cheniere. The loan can be exchanged into 50 million shares of common stock at a conversion rate of $5 per share at any time.

Cheniere owns Sabine via its 91% holding in master limited partnership Cheniere Energy Partners. Sabine Pass became operational in April and has 20-year contracts beginning next year--$256 million of revenue per year from Total and $256 million from Chevron for 1 billion cubic feet per day each (PFR, 3/30/07), as well as $250 million from subsidiary

Cheniere Marketing for 2 bcf per day on a take-or-pay basis.

Turkelson says the company will not be selling Sabine, but is still considering selling its 30% interest in the 1.5 bcf Freeport LNG, on Quintana Island near Freeport, Texas. "We don't have any immediate plans to sell our interest, but would consider offers as presented. Proceeds would be used to pay down the $400 million term loan," he says of Freeport.

There are no provisions for GSO to make further investments in Cheniere, but he says it is possible the company will present investment opportunities to GSO in the future. Officials at GSO declined to comment.

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