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Chesapeake sets details on debt exchange that will give it more time

Chesapeake's corporate headquarters is seen in Oklahoma City. [OKLAHOMAN ARCHIVES]
Chesapeake's corporate headquarters is seen in Oklahoma City. [OKLAHOMAN ARCHIVES]

Chesapeake Energy Corp. announced Tuesday it intends to close on a deal to acquire $1.5 billion in new debt before Christmas.

The company also said it is boosting its offer to buy back other debt associated with a company it acquired about a year ago.

The company aims to use the loan’s proceeds to retire debt previously held by WildHorse Resource Development Corp., adding it to its own load with hope the re-arrangement will give it more time to meet required covenants to remain solvent.

While the news Chesapeake announced Tuesday is deep in details, those details reveal the company cleared critical hurdles that could have been obstacles to achieving its planned goals.

Once the targeted debt is retired by the new loan, Chesapeake officials expect the modified arrangement will provide the company with additional financial flexibility.

The outstanding notes Chesapeake is offering to acquire were issued by Brazos Valley Longhorn and Brazos Valley Longhorn Finance Corp., each wholly owned subsidiaries of Chesapeake that it acquired when the company bought WildHorse for about $4 billion.

As for those notes, the Oklahoma City-based oil and natural gas company announced it is increasing its early retirement tender offer for 6.875% senior notes that are due in 2025 to $950 per $1,000 in principal amount, up from $920.

As a result of that offer increase, officials said the total consideration would be $1,000 per $1,000 of principal (their value on current markets would be less without Chesapeake’s offered increase).

Chesapeake also announced Tuesday that holders representing at least a majority of the outstanding aggregate principal amount have committed to tendering their notes early.

Consequently, Chesapeake is encouraging other holders to do the same, since a majority retirement would strip the notes of their original intended benefits allowed by the indenture created when they were issued.

Additionally, those notes no longer would be entitled to senior consideration if the company were to default on its overall debt.

In a previous filing, the company stated the deal will give it an extra year to reach a lender-desired 4-to-1 ratio of debt to consolidated earnings before interest, taxes, depreciation, amortization and exploration.

The company also is required as part of the previously announced agreement to maintain a liquidity of at least $250 million at all times, and to use aggregate cash to pay off certain amounts of its debt early if it makes an asset sale of $50 million or more.

"We are very pleased to have the financing in place to eliminate Brazos Valley's separate capital structure,” Chesapeake CEO Doug Lawler stated Tuesday.

“Combining into a single financing structure increases our flexibility, enhances our credit profile and improves our ability to continue to meet our financial obligations as we focus on reducing debt, improving our cost structure and positioning the company to deliver increased shareholder returns."

The value for Chesapeake’s shares, traded under the ticker symbol CHK on the Nasdaq, were flat on Tuesday. The share's value closed at about 77.5 cents, off about 1.5 cents on the day.

Jack Money

Jack Money has worked for The Oklahoman for more than 20 years. During that time, he has worked for the paper’s city, state, metro and business news desks, including serving for a while as an assistant city editor. Money has won state and regional... Read more ›