Shares of liquefied natural gas (LNG) companyNew Fortress Energy(NASDAQ: NFE) surged 8.7% on Tuesday as of 3:41 p.m. ET.
On a down day for the markets, New Fortress delivered what was perceived as short-term good news. However, it wasn't great news, as the company was able to both push out some debt maturities and raise cash in the equity markets....but at a cost.
A deal with creditors and equity holders
Yesterday, 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 bearing an interest rate of 12% due in 2029. The company also agreed to have these notes secured by a 49% stake in New Fortress' Brazil operations, giving creditors more collateral than they had prior.
Then today, the company priced a public offering of its shares, selling 46.3 million shares at $8.63, raising another $400 million. Of note, chairman and CEO Wesley R. Edens purchased 5.8 million shares of the offering, hoping to spur confidence in the company.
While these news items offer some relief for the company and shareholders, it's really not a great sign New Fortress had to take on a higher interest rate, pledge more collateral, and dilute existing shareholders with the stock near all-time lows.
New Fortress disappointed investors with its second-quarter earnings release back in August, missing guidance by a wide margin as its new floating LNG facility was delayed in being placed into service. While the company said the facility was placed into service July 19, apparently the delays led to some consternation about these looming debt maturities. Of note, New Fortress had over $7.6 billion in debt against just $133 million in cash at the end of last quarter. So, any hiccup in operations could put the company's solvency in danger.
New Fortress remains a risky bet
No doubt, the pushout of maturities and new equity raise gives the company breathing room. Still, management has only guided for $1.3 billion in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for 2025. When compared with the company's $7 billion-plus in net debt, that's still a high leverage ratio. That means New Fortress remains a high-risk, leveraged bet on LNG prices going forward.
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
