Investing.com -- On Tuesday, Fitch Ratings upgraded the long-term Issuer Default Rating (IDR) for Cheniere Energy (NYSE: LNG ), Inc. (CEI) and Cheniere Energy Partners , L.P. (NYSE: CQP ) to 'BBB' from 'BBB-'. The senior unsecured debt at both firms also received an upgrade to 'BBB' from 'BBB-'. The outlook for both issuers remains stable.

The upgrade reflects Fitch's anticipation that leverage will fall below 4.0x at both CEI and CQP, including funding for expansion projects. This is in line with the firms' credit-friendly leverage policy. The ratings also take into account the strong operating profile and stable cash flows provided by long-term take-or-pay style contracts, covering over 90% of total LNG production for the next three years.

CEI generates its cash flows from two natural gas liquefaction projects, Sabine Pass Liquefaction, LLC (SPL) and Cheniere Corpus Christi Holdings, LLC (CCH). These projects are over 90% contracted through 2027. The average remaining contract life is about 15 years, providing stable cash flows.

CEI has repaid around $8.7 billion of debt since 2020, focusing on project-level debt, and has simplified its capital structure. The firm's plan includes around $3.0 billion in remaining funding for CCH's Stage 3 project and base plus variable distributions for CQP unitholders.

CEI's debt obligations are structurally subordinate to $4.9 billion non-recourse debt at CCH and $6.8 billion debt at CQP. However, strong coverage along with debt reduction and debt migration from the projects to the parent companies partially alleviates the structural subordination of the CEI and CQP debt.

CEI is a midstream corporation with the largest LNG production and export facility in the U.S., and the second largest globally. It has long-term take-or-pay style contracts with a diverse mix of predominately investment-grade customers. CEI's obligations are structurally subordinate to about $20 billion of operating subsidiaries' project obligations and intermediate holding company debt.

Fitch expects CEI's EBITDA leverage will average below 4.0x over the next three years. Structural subordination and business risk considerations outweigh the lower leverage at CEI and contribute to the one-notch rating difference.

Key factors that could lead to a downgrade include consolidated EBITDA Leverage above 4.5x expected on a sustained basis, any construction issues that significantly deteriorate cash flows, a downgrade at SPL or CCH, a multi-notch downgrade or financial distress of a key SPA counterparty, or a significant change in long-term fundamentals over volatile international gas prices that put additional pressure on the company's cash flow generation.

CEI and its subsidiaries have strong liquidity. As of Dec. 31, 2024, CEI had a fully available $1.25 billion Revolving Credit Facility (RCF) due 2026, and about $2.64 billion of unrestricted cash on the balance sheet on a consolidated basis. CQP has an undrawn $1.0 billion RCF due 2028. Near-term maturities across the organization are manageable. Management indicated it expects to refinance maturing obligations at the project level with a combination of amortizing project level debt, CQP or CEI unsecured notes and cash repayments, increasingly shifting project-level debt to the corporate level and while reducing leverage.

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