Tuesday, March 8, 2011

Cheniere Energy, Cheniere Partners plunge on debt lawsuit

HOUSTON, Texas - Shares of Cheniere Energy (NYSE AmEx: LNG) and Cheniere Energy Partners (NYSE AmEx: CPQ) plummeted on March 8 on news that Cheniere Energy Inc. had filed a lawsuit against Centerbridge Partners LP, saying the distressed investment-focused hedge fund disrupted Cheniere's business with a letter alleging it had defaulted on debt.

CPQ shares, already in decline following a March 3 quarterly earnings report that was less than stellar (see story immediately below), declined 21.9 percent on March 8, from a March 7 close of $19.73 to $15.40 at the close on March 8. That put CPQ close to its 12-month low of $13.53. On the bright side, CPQ’s annual dividend of $1.70 now has a yield of 12.6 percent - if the lawsuit doesn’t require a dividend revision.

Some 2.1 million units of CPQ traded on March 8, about three times normal volumes of 395,000 shares per day.

Cheniere charges in the lawsuit that Centerbridge engaged in defamation, business disparagement and tortious interference with business relationships against it and its Sabine Pass unit, in a lawsuit filed in the Harris County, Texas, state district court. Cheniere disclosed the lawsuit in a March 8 filing with the Securities and Exchange Commission.

Centerbridge Partners claims that a Cheniere subsidiary is in default on its senior debt notes.

At issue is a complicated money flow between Cheniere Energy, subsidiary Cheniere Energy Partners, the central Sabine Pass operation, and marketing entity Cheniere Energy Investments, and whether or not such transactions qualify as GAAP revenue for Sabine Pass.

Cheniere said Sabine Pass received a letter from Centerbridge saying it strayed from generally accepted accounting principles by recording affiliate payments from Cheniere Energy Investments LLC as revenue. As such, the letter argued, Sabine Pass was in default under the terms of some of its notes, of which Centerbridge said it was a significant holder.

SmarTrend ranked units of Cheniere Energy Partners in a Downtrend on Jan. 20 when the stock was at $21.00.

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