Analyst upgrades Cheniere based on new financing

RBC Capital Markets upgraded Cheniere Energy Inc. and raised its target price Tuesday after the developer of liquid natural gas-receiving terminals said it secured a $250 million loan.

In a note to clients, RBC Capital Markets analyst Lasan Johong said the new financing secures Cheniere's short-term liquidity position for three years _ regardless of LNG cargoes. RBC said the new financing also likely allows Cheniere to avoid filing for Chapter 11 bankruptcy protection.

As such, RBC upgraded Cheniere to "Sector Perform" from "Underperform" and raised its target price to $7 from $1.

Cheniere shares closed Monday at $4.98. They've traded in a range of $2.47 to $41.84 in the past year.

The Houston-based company said Monday it had closed a $250 million senior secured convertible loan agreement with funds led by GSO Capital Partners LP and its affiliates.

The company said it will use proceeds to repay a $95 million bridge loan obtained in May, fund a reserve account for payments related to its Sabine Pass LNG receiving terminal and other general corporate purposes.

RBC said net proceeds of the loan are estimated at $235 million and noted the convertible debt carries a hefty interest rate of 12 percent.

"Because we believe it will be approximately mid-2009 before (Sabine Pass) attracts some cargoes, and not until early-to-mid 2010 before it attains a steady stream of cargos, obtaining this financing was imperative to bridge Cheniere until cargo flows were adequate to support cash flow needs," RBC said in its note.