Paving the way
When Blackstone Group was looking to monetise its investment in publicly traded liquefied natural gas exporter Cheniere Energy Partners, Morgan Stanley offered a unique pitch.
The private equity firm, through its Blackstone CQP entity, could retain ownership of its shares by taking out a US$2.6bn five-year holdco loan that would, in part, pay a dividend.
The transaction, which was upsized during syndication, is the largest minority equity interest-backed term loan B, and the largest dividend recapitalisation of 2019.
The bespoke financing package set the stage for other private equity firms to attempt similar structures to seek a return on their investment.
“This was opening up a market, paving the way for other people to consider using a structure that we had proven worked in spades,” said Andrew Earls, head of North America leveraged finance at Morgan Stanley.
During syndication, the loan was increased by US$100m and the original issue discount was tightened to 99.75 from initial guidance of 99–99.5. It priced at 350bp over Libor.
The financing, which was oversubscribed, featured more than 100 investors, including a large number in Asia.
Proceeds were used to repay notes and fund the dividend distribution to Blackstone. The loan was secured by the stock of Blackstone CQP Holdco and the 40% of Cheniere Energy Partners units owned by Blackstone CQP.
“It’s an example of innovative problem solving,” said Clarke Adams, head of North America leveraged finance syndicate at Morgan Stanley.
“It’s very applicable for how sponsors monetise these large equity positions they have in an environment where sometimes the equity market is not conducive to big sell-downs,” he said. “This is a way for them to get capital back to their limited partners while retaining effectively 100% upside of an investment that has a lot of room to run.”
CQP owns the Sabine Pass LNG Terminal on the US Gulf Coast, which has five operational and contracted LNG trains, with a sixth in late-stage development. When all trains are completed the project capacity will be 27m tonnes of LNG per year.
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