By Matthieu Wirz, Angel Gonzalez and Melodie Warner
Chesapeake Energy Corp. (CHK) has increased the size of its unsecured loan being sold to institutional investors to $4 billion from $3 billion amid strong investor demand, according to a source familiar with the matter.
Goldman Sachs Bank USA (GS) and Jefferies Group Inc. (JEF) are syndicating the loan, which the oil and natural-gas producer will use to repay its secured revolving credit line.
The news comes one day after Chesapeake executives, including Chief Executive Aubrey McClendon, told investors that the original loan, disclosed Friday, gave the embattled company enough liquidity to execute several planned asset sales "from a position of strength."
Analysts, however, voiced continued concerns about the company's financial situation, and credit watchdog Standard & Poor's on Tuesday downgraded its ratings a notch to double-B-minus from double-B, a step further into junk territory. S&P also gave it a negative outlook to reflect the mounting turmoil the company faces, and the likelihood it will face "an even wider gap between its operating cash flow and planned capital expenditures than we had previously anticipated."
Chesapeake shares, which rose on Monday after the executives' presentation, closed down 5.6% at $14.65 on Tuesday.
Argus Research analyst Phil Weiss said Tuesday that Chesapeake's "near-term cash needs are growing," and "its spending levels are unsustainable and ill-advisable elevated."
The new loan Chesapeake secured from Goldman Sachs and Jefferies will pay an 8.5% interest rate through December before stepping up to 11% in January, offering a steep premium to the company's bonds, which traded at a yield of around 7% prior to the announcement of the new financing. Disclosure of the loan's pricing prompted investors to sell out of the lower-yielding bonds and place orders for the new deal, said one hedge fund manager who hoped to buy a piece of the loan.
Chesapeake's bond yields, which move in opposite direction to price, rose to more than 8% in trading Monday before falling back to a 7.5%-8% range Tuesday, according to MarketAxess.
In a filing Monday with the Securities and Exchange Commission, the California Public Employees' Retirement System, which in mid-April owned about 1.8 million shares of Chesapeake stock, asked fellow shareholders to vote in the upcoming annual meeting for its proposal to eliminate the supermajority requirement needed to amend or adopt bylaws at the company. CalPERS cited concerns with compensation and transparency due to recent revelations about McLendon's borrowings to fund his participation in a controversial program where he owned a small stake in every well drilled by Chesapeake.
"We are concerned with the apparent misalignment between shareowners and the company," it said.
Chesapeake's annual shareholder meeting is scheduled for June 8.
-By Matthieu Wirz, The Wall Street Journal, and Angel Gonzalez, Dow Jones Newswires; 713-547-9214;firstname.lastname@example.org