Franklin Prepares for Potential Chesapeake Debt Restructuring
April 09 2020 - 12:49PM
Dow Jones News
By Alexander Gladstone
Mutual-fund company Franklin Resources Inc. is taking steps to
prepare for a potential debt restructuring or bankruptcy of
indebted oil-and-gas driller Chesapeake Energy Corp., according to
people familiar with the matter.
Franklin, which owns a substantial chunk of Chesapeake's nearly
$9 billion in debt and holds a 12.4% equity stake in the company,
has hired law firm Akin Gump Strauss Hauer & Feld LLP for
negotiations in advance of a possible default, these people
said.
Chesapeake, Franklin and Akin didn't immediately respond to
requests for comment. The company's stock price fell to 19 cents
Thursday amid a lengthy slide in oil prices as the coronavirus
pandemic slowed economic growth and an oil-price war between Russia
and Saudi Arabia flooded global markets, sending crude prices to
near-two-decade lows.
The Saudis and Russians reached an agreement in principle
Thursday to resolve their feud over market share, The Wall Street
Journal reported, joining a global coalition of other countries
seeking to ease the glut in oil supply. Brent, the global crude
benchmark, and its U.S. counterpart rallied on the tentative
deal.
Chesapeake is known as a pioneer of the U.S. shale industry, one
of the first American companies to deploy horizontal fracking
techniques on a large scale.
The energy company has completed a series of financial
engineering exercises to trim its debt over the years through
out-of-court bond exchanges. But the recent collapse in commodity
markets has made it difficult for the company to address its
near-term debt obligations and has hammered its stock and bond
prices. It has hired law firm Kirkland & Ellis LLP and
financial adviser Rothschild Inc. to craft a restructuring
strategy, according to people familiar with the matter.
U.S. oil-and-gas drillers are under pressure to repay the hefty
tab they ran up with banks and bondholders to turn America into the
world's largest energy producer. The deterioration in oil prices
has undermined their ability to pay back what they owe, pushing
many drillers and oil-field-service contractors to seek concessions
from creditors or consider bankruptcy.
Chesapeake faces a $136 million coupon owed to junior
bondholders on July 1 and a $192 million bond maturity payment due
Aug. 1.
Even before the recent plunge in oil prices, Chesapeake had
warned that slumping energy markets would jeopardize its ability to
continue as a going concern.
Write to Alexander Gladstone at alexander.gladstone@wsj.com
(END) Dow Jones Newswires
April 09, 2020 12:34 ET (16:34 GMT)
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