Chesapeake Energy Corp. (NYSE:CHK) priced its proposed 5-year term loan and has upsized the term loan to $1.5 billion from a previously announced size of $1.0 billion. Chesapeake intends to use the net proceeds of the loan to finance tender offers for its unsecured notes, with any remaining proceeds used for further debt repayments and other general corporate purposes.
The loan will have a five-year term and bear interest at a rate of LIBOR plus 7.50% per annum, subject to a 1.00% LIBOR floor, or “approximately 8.5% all-in at today’s rate, which we think is reasonable given the circumstances,” noted Phillips Johnson of Capital One Securities in a note following the announcement.
The loan will be secured by the same collateral securing the company's revolving credit facility (with a position in the collateral proceeds waterfall junior to the credit facility).
“The refinancing will provide near-term breathing room for CHK, which faces ~$2.2B principal amount of notes that either mature or can be put to the company in '17 and '18. Assuming the incremental $500MM is also used to refinance near-term maturing or puttable notes, we estimate CHK’s annual gross interest expense will increase by ~$75MM from our prior run-rate estimate of ~$550MM. At the end of 2Q, CHK was carrying ~$8.7B of total debt (principal amount), with ~$1.2B set to mature in ’17/’18 and another ~$1.0B that can be put to the company in that time frame,” Johnson continued.
With $4 million in cash and approximately $3.1 billion available on its $4 billion revolver exiting the second quarter, a previous Capital One Securities model “assumed CHK would exhaust its liquidity by 4Q18, but we now estimate the new term loan will extend the liquidity wall to mid '20. We upgraded CHK to Equalweight yesterday given a significantly improved financial outlook following the recent steps it has taken to rehabilitate its balance sheet and liquidity and to eliminate its vast midstream liabilities,” Johnson concluded.
The loan is expected to close on or before August 23, 2016, subject to customary closing conditions and final documentation.
The term loan is being arranged by Goldman Sachs Bank USA, Citigroup Global Markets Inc. and MUFG as joint lead arrangers.