Chesapeake Swaps Debt for Stock -- Update

By Lisa Beilfuss

Chesapeake Energy Corp. on Thursday said it would swap 4.1% of its shares outstanding for debt, the latest move by the beleaguered energy company to ease its debt load as it struggles with low natural-gas prices.

The Oklahoma City company, one of the biggest U.S. producers of natural gas, disclosed in a regulatory filing that it will issue 28.1 million shares, worth $122.5 million based on Wednesday's closing price, to redeem $153 million in debt.

The agreement by bondholders to make the swap suggests they may not see the company as headed toward bankruptcy. In the event of a bankruptcy, bondholders are paid first whereas stockholders are lower on the chain.

Chesapeake has a significant amount of debt due starting in 2017, and "they're starting to find creative ways to ease that wall of maturities coming," said Tim Revzan, analyst at CRT Sterne Agee. "It's not a game changer," but the move shows that Chesapeake is willing to explore options for bringing down debt while waiting for gas prices to bounce, Mr. Revzan said.

Chesapeake shares initially jumped on the news. But in afternoon trading Thursday, the stock fell 5.1% -- dragging its decline over the past 12 months to 73%.

Chesapeake shares rose 5.5% in premarket trading, to $4.60. If the stock were to open at that level, it would still have tumbled 67% over the past 12 months.

In February, investors wiped away half of the stock's value after a report said Chesapeake was working with bankruptcy advisers, though it said that the advisers were looking at ways to strengthen its balance sheet and that it had no current plans to pursue a bankruptcy.

The company had about $9.4 billion in debt on its books at quarter end, according to Mr. Revzan, a result of big spending while energy prices were high.

"No one is expecting an imminent bankruptcy," Mr. Revzan said Thursday. "On the margin, [the debt swap] makes the wall of maturities that much smaller," he said, though "this action barely moves the needle for them, especially as it pertains to 2017 debt maturities."

"No one is expecting an imminent bankruptcy," Mr. Revzan said Thursday, "but on the margin, [the debt swap] makes the wall of maturities that much smaller."

Chesapeake made a similar, but much smaller, swap in March. The company has also sold off assets to shore up its cash, and last month it amended its credit facility agreement with lenders.

"They have a couple of years of a liquidity runway," Mr. Revzan said. "But what they really need is $3 or higher gas prices." Natural gas traded recently at $2.16 a million British thermal units.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

May 12, 2016 16:12 ET (20:12 GMT)

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