Chesapeake Energy Works on a Recovery Plan With Evercore
December 14 2015 - 4:10PM
Dow Jones News
Chesapeake Energy Corp. is working with restructuring advisers
at Evercore Partners Inc. to shore up its balance sheet as
commodity prices extend their decline, according to people familiar
with the matter.
The Evercore bankers are advising the natural-gas producer on
potential measures to reduce its $11.6 billion debt load, such as
exchanging existing bonds at a discount for new securities or
selling assets, the people said.
The Oklahoma City company, co-founded in 1989 by famed
wildcatter Aubrey McClendon, became one of the dominant U.S. gas
explorers during the shale boom. Fueled by cheap debt, Chesapeake
expanded aggressively in Ohio, Texas and other parts of the U.S.,
becoming the second-largest U.S. natural-gas producer behind Exxon
Mobil Corp.
But the tumble in natural gas prices has hurt the company, which
has posted three straight quarterly losses this year. Chesapeake
ended September with $1.8 billion in cash, down from $4.1 billion
at the end of 2014, according to regulatory filings.
Chesapeake stock has fallen 79% this year to around $4.09 per
share. Its market capitalization currently stands at around $2.7
billion, down from $11.4 billion a year ago.
Natural gas prices fell to their lowest point in more than a
decade Monday, as record-high December temperatures in New York and
other cities sap demand for gas as a heating fuel. Prices are down
35% this year and 69% below their February 2014 highs, driven
largely by oversupply after advances in drilling techniques
unlocked new reserves in shale rock formations across the U.S.
Chesapeake's bonds have been among the hardest hit in a recent
selloff of junk-rated energy-company debt, driven in part by
continued declines in oil and gas prices. A broader decline in
high-yield bond and loan prices has further weighed on energy
companies' debt.
Chesapeake's $1.3 billion in bonds due in 2020 bearing 6.625%
interest recently traded at 29 cents on the dollar, down from 47
cents late last month, according to MarketAxess.
Chesapeake already has taken steps to reduce its debt load. The
company is offering to exchange bonds at a discount for up to $1.5
billion of new debt. Investors who take the offer would accept a
reduction in the face value of their debt in exchange for a
stronger claim on the company's assets.
The proposed swap follows a deal Chesapeake cut with its banks
earlier this year that allowed it to issue the new high-ranking
debt. In return, Chesapeake agreed to secure its $4 billion credit
line with a top-ranking claim on its assets.
Dozens of money-losing oil-and-gas companies have issued new
debt this year, sometimes swapping it for discounted bonds, in an
effort to ride out the slump in prices. SandRidge Energy Inc.,
Midstates Petroleum Co. and Halcon Resources Corp. all have done
such deals this year.
A Texas drilling venture Mr. McClendon formed after his ouster
from Chesapeake in 2013 last month sold $530 million in bonds
carrying a 13% yield.
The collapse in oil and gas prices has forced others to file for
bankruptcy protection to deal with their debts.
Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com and Ryan
Dezember at ryan.dezember@wsj.com
(END) Dow Jones Newswires
December 14, 2015 15:55 ET (20:55 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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