Follow-up to Ratio: Funding the Leviathan Expansion Without Losing the Cushion
Ratio appears to have a workable bridge to Leviathan's H2 2029 first gas without an immediate equity gap: in 2025 it generated $180.5 million from operating activity, and management's presentation still shows positive Leviathan cash flow before debt service through the buildout years. But note 11 makes clear that this cash is no longer as free as it looks, because the payment waterfall, liquidity tests, and covenant mechanics keep a growing share of the cushion inside the structure.
The Bridge Exists, But It Is Less Flexible Than It Looks
The main article already established the core point: Leviathan still throws off cash, but the expansion is beginning to compress the margin of safety. This follow-up isolates the financing question: on the way to first gas in the second half of 2029, is there a funding hole that clearly requires new equity, or is there a workable bridge from the existing structure?
The short answer is that the bridge is there, but it rests on three very different layers: Leviathan's current cash generation, a bank facility refinanced in 2025, and existing liquidity in cash and securities. The problem is not that the bridge is missing. The problem is that part of those layers is no longer freely distributable cash for unitholders.
That matters because it is easy to look at the presentation, see more than $2 billion of cumulative projected cash flow over the coming decade, or see net financial debt of $415 million, and conclude that the financing question is closed. That is only a partial read. The presentation itself shows cash flow before debt service, and the financing agreement states explicitly that after the FID and until the expansion is completed, quarterly releases from the revenue account are also subject to a liquidity test that covers the next 12 months of expansion spending. In other words, cash that looks available at first glance is already committed first to project stability.
2025 Showed What The Asset Can Generate, And What The Partnership Can No Longer Distribute Without A Cost
The right place to start is not the discounted-value headline, but the actual 2025 cash flow. In 2025 Ratio generated $180.5 million of cash from operating activity. That is a strong base. But on an all-in cash view, after $62.8 million of investing outflows and $141.3 million of financing outflows, cash fell by $23.7 million to $88.5 million.
That number matters because it separates two different stories. On one hand, Leviathan is still generating cash. On the other hand, once the partnership is investing, servicing debt, and distributing $130 million in one year, the cash line stops rising and starts falling.
This breakdown sharpens a point that the headline numbers can blur. Of the $141.3 million that left through financing activity in 2025, $130 million was distributions. Without those payouts, the cash picture would still have been positive. So the real test of the bridge is not whether Leviathan can fund itself. It is whether the partnership is prepared to treat distributions as residual rather than automatic.
The cash flow statement adds another layer. In 2025, $32.4 million went into other long-term assets and another $56.0 million into oil and gas assets. That means part of the expansion story is already sitting in cash uses before first gas arrives.
The Bridge Relies On Debt Reopened In 2025, But That Facility Does Not Stay Open Through 2029
In May 2025 the partnership replaced the previous loan with a new $600 million facility. On June 5, 2025 it drew $450 million, mainly to refinance the earlier loan, while the broader facility was also intended for continued Leviathan development, export-infrastructure expansion, future exploration activity, and repayment of Series D bonds.
At first glance that looks like a comfortable cushion: a $600 million facility against $450 million drawn. But this is where one of the most important details in note 11 sits. The utilization period lasts only until 15 days before the first principal payment, which starts on April 15, 2026. So the undrawn part of the facility is not an open line all the way to 2029. It is a short window designed to capture the transition into FID, not a standing credit box for the full buildout period.
After that window, the bridge rests mainly on two sources: Leviathan cash flow and the partnership's ability to retain cash inside the structure. There is also an accordion feature of up to $50 million, but it is not a committed facility and remains available only until the earlier of the end of 2028 or completion of the development plan. That helps, but it does not remove the need for tighter payout discipline. Even additional debt layers are constrained: the agreement caps total debt capacity with quantitative limits and a leverage test of no more than 70% against 2P reserve cash flow at the time new debt is taken.
| Funding layer | Amount | What it actually provides |
|---|---|---|
| New bank facility | $600 million | Refinancing and investment capacity, but with a short utilization window |
| Drawn as of December 31, 2025 | $450 million | The debt already sitting in the structure |
| Possible accordion | Up to $50 million | Extra flexibility, but not committed funding |
| Series D bonds | $76.9 million carrying value, $77.7 million fair value | Another debt layer with final maturity in 2029 |
| Cash, securities, and short-term deposits | $109 million in the presentation | Existing liquidity, not free payout capacity |
| Net financial debt | $415 million in the presentation | A manageable starting point, but not a low enough number to ignore cash discipline |
What really matters is not only the amount of debt, but also the timing. The bonds mature finally in 2029, right around the first-gas window of the expansion, while the bank loan runs to July 2031, with 45% of principal still due in the final payment. So 2029 is not a clean finish line where the expansion opens and the pressure disappears. It is the year in which the two sides of the equation meet: new output on one side, peak financing discipline on the other.
The Presentation Shows Why There Is No Visible Equity Hole Today, But Also Why The More Than $2 Billion Headline Misleads
Stage one of the expansion passed FID on January 15, 2026, with a total budget of about $2.36 billion on a 100% basis and first gas expected in the second half of 2029. Of that amount, roughly $504 million had already been approved back in July 2024. The same immediate report also states that the partnership intends to finance its share of stage one from the existing financing and its own sources.
The strongest slide in the presentation is also the easiest to misread. It shows projected net cash flow of $139 million in 2026, $161 million in 2027, $152 million in 2028, and $162 million in 2029. Cumulatively, that is about $614 million across the four buildout years leading into first gas.
Those figures support the view that there is no obvious equity hole today. In fact, the presentation implies that the existing asset should keep generating cash throughout the expansion years. But there is an important limitation: this is cash flow before debt service. That makes it a project cash-generation view, not a view of what is actually left after bank debt, bonds, reserve requirements, and liquidity tests.
That is also why the second number highlighted in the presentation, average annual cash flow for debt service of $205 million through 2035, needs to be read carefully. That average includes the post-expansion years, when projected cash flow rises to $216 million to $263 million. In the bridge years themselves, 2026 through 2029, the numbers are lower. So the long-run average gives a more comfortable picture than the actual execution window.
The Covenants Are The Mechanism That Decides Whether Cash Turns Into Dividends Or Stays Inside The Project
This is the core of the continuation thesis. Under the new loan, the partnership must keep its FLR at or below 65%. If the ratio rises above 65%, it has 15 days to pay debt down to 60%. There is also a minimum backward DSCR of 1.05, above which the cash-sweep mechanism can pull part of excess cash into principal repayment.
That is already enough to limit payout freedom. But after the FID there is another, even more important layer: during the period between final investment decision and completion of the expansion, quarterly releases from the revenue account are also conditioned on a 12-month liquidity test for expansion spending. That changes the meaning of the word excess entirely.
| Mechanism | Requirement | Why it matters |
|---|---|---|
| FLR | Up to 65%, and if breached it must be brought back to 60% within 15 days | A covenant breach can turn surplus cash into mandatory debt paydown |
| Backward DSCR | Minimum 1.05, while cash release requires 1.2 | Not every quarter-end cash balance becomes distributable |
| Liquidity test | Coverage of the next 12 months of obligations | During buildout it also covers near-term expansion spending |
| Minimum liquid assets | $20 million at all times | A hard cash floor remains inside the structure |
| DSRA | Six months of principal, interest, and non-utilization charges | Part of liquidity is pre-committed before equity sees it |
Put simply, the expansion is not funded only because Leviathan is a cash-generating field. It is also funded because the financing agreement forces the partnership to keep part of that cash inside the structure. Anyone building the story around continued distributions at something like the 2025 pace is missing the main change. What looked like surplus in 2025 is no longer obviously surplus on the road to 2029.
The partnership did meet all its covenants as of year-end 2025, but that is not the end of the story. It is the starting point. Once the expansion moves from plan to project-under-execution, those same covenants stop being abstract annual tests and start becoming a practical brake on distributions.
Note 9 Shows That Cash Is Already Going Into Infrastructure Before Output Steps Up
Another sign that the bridge is already working does not appear in the debt note at all. It appears in long-term assets. Other long-term assets rose in 2025 to $115.1 million from $86.0 million. The three most important lines are precisely the ones that sit ahead of the expansion: the integrated section rose to $20.4 million, the upgrade of gas transportation infrastructure outside Israel rose to $21.6 million, and the Nitzana line jumped to $25.3 million from only $3.4 million.
The footnote matters as much as the numbers. The integrated section, the gas transportation upgrade project, and the Nitzana line are all still under construction, so the partnership has not started depreciating them. That is accounting language for a simple economic point: the cash has already gone out, while the new output has not yet come in.
| Other long-term assets | 2024 | 2025 | What it means |
|---|---|---|---|
| Integrated section | 17.0 | 20.4 | Another infrastructure layer for capacity |
| Gas transportation upgrade outside Israel | 13.8 | 21.6 | Export capacity needs cash before it lifts output |
| Nitzana line | 3.4 | 25.3 | Spending accelerated well before first gas |
| Total other long-term assets | 86.0 | 115.1 | The expansion is already being built through the balance sheet |
That is exactly why the sentence Leviathan will fund the expansion is correct, but not complete. Leviathan does generate the base. But until 2029 it must fund not only wells and subsea systems, but also a layer of transportation and export infrastructure that is already starting to accumulate on the balance sheet before the new capacity turns into revenue.
So Does The Bridge Hold
For now, yes, but on one central condition: distributions have to become residual rather than the starting point.
The local evidence supports the read that there is currently no clear need for immediate new equity. There is positive operating cash flow, there is debt that was refinanced in 2025, there is starting liquidity of $109 million in cash, securities, and short-term deposits, and there is also an accordion of up to $50 million. In addition, the FID report states explicitly that the partnership intends to fund its share of stage one from the existing financing and its own sources.
But the same set of documents supports the less comfortable conclusion as well: the margin of safety is already smaller than the cumulative cash-flow headline suggests. Cash already fell in 2025 after a year of heavy distributions. Note 9 shows that infrastructure spending is already climbing. Note 11 makes clear that cash left in the revenue account is not automatically released. And the presentation itself is talking about cash flow before debt service, not free cash for unitholders.
So the follow-up thesis is straightforward: Ratio probably does not lack a funding bridge to 2029 today. What it lacks is room for error. If Leviathan's operating pace holds, if the budget does not materially slip, and if distributions are adjusted to the payment waterfall and liquidity tests, the expansion can move forward without outside equity. If one of those three breaks, the question will move very quickly from project funding back to cushion funding.
Conclusion
The main article was right: Leviathan still generates cash, but the expansion is already eating into the cushion. This continuation simply shows how that happens. Not through an obvious funding hole, but through a rule set that turns potential surplus cash into retained liquidity, debt service, and only then, if at all, distributions.
The thesis in one line: the bridge to 2029 exists, but it now depends far more on payout discipline, covenant compliance, and liquidity retention than on visibly surplus free cash.
Disclosure: Deep TASE analyses are general informational, research, and commentary content only. They do not constitute investment advice, investment marketing, a recommendation, or an offer to buy, sell, or hold any security, and are not tailored to any reader's personal circumstances.
The author, site owner, or related parties may hold, buy, sell, or otherwise trade securities or financial instruments related to the companies discussed, before or after publication, without prior notice and without any obligation to update the analysis. Publication of an analysis should not be read as a statement that any position does or does not exist.
The analysis may contain errors, omissions, or information that changes after publication. Readers should review official filings and primary sources before making decisions.