The company reached an agreement with its creditors and issued additional stock, providing it with increased financial flexibility.
Shares of liquefied natural gas (LNG) firm New Fortress Energy (NFE) experienced a notable rise of 8.7% by 3:41 p.m. ET on Tuesday. Despite an overall downturn in the market, New Fortress delivered what was perceived as positive short-term news. The developments were not without their drawbacks, as the company managed to extend some debt maturities and raise additional funds in the equity markets at a cost.
### Agreement with Creditors and Equity Holders
New Fortress announced a deal with its creditors to exchange its 6.75% 2025 notes, 6.50% 2026 notes, and 8.75% 2029 notes for new notes with an interest rate of 12% due in 2029. Additionally, the company agreed to secure these notes with a 49% stake in its Brazil operations, providing creditors with increased collateral.
In a subsequent move, the company successfully priced a public offering of its shares. It sold 46.3 million shares at $8.63 per share, thereby raising $400 million. As part of this initiative, chairman and CEO Wesley R. Edens purchased 5.8 million shares, aiming to instill confidence in the company’s prospects.
While these actions offer some relief to the company and its shareholders, they also signal challenges. New Fortress had to accept a higher interest rate, pledge more collateral, and dilute existing shareholders with the stock trading near all-time lows.
New Fortress had previously disappointed investors with its second-quarter earnings report in August, missing guidance by a significant margin due to delays in bringing its new floating LNG facility into service. The facility eventually commenced service on July 19, but the delays prompted concerns regarding impending debt maturities. At the end of the last quarter, New Fortress had over $7.6 billion in debt compared to just $133 million in cash, indicating that any operational disruptions could jeopardize the company’s solvency.
### Risk Assessment
While extending debt maturities and raising new equity provide the company with some reprieve, New Fortress remains a high-risk investment. Management has forecasted $1.3 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2025. When compared to the company’s net debt exceeding $7 billion, this still represents a high leverage ratio, indicating that New Fortress continues to be a highly leveraged investment dependent on LNG price movements.
Billy Duberstein and/or his clients have no positions in any of the stocks mentioned. The Motley Fool holds no positions in any of the stocks mentioned and has a disclosure policy.
