Chesapeake Energy to issue $850M of convertible senior notes

Chesapeake Energy Corp. (NYSE:CHK) has commenced a private placement to eligible purchasers of $850 million aggregate principal amount of convertible senior notes due 2026. The notes will be convertible, under certain circumstances, into cash, Chesapeake common stock or a combination of cash and Chesapeake common stock, at Chesapeake's election.

The company also intends to grant the initial purchasers of the proposed offering a 30-day option to purchase up to an additional $150 million aggregate principal amount of notes.

Chesapeake intends to use the net proceeds from the offering for general corporate purposes, which may include debt repurchases and the repayment of its credit facility and senior notes with near-term maturities as they become due.

In a note Thursday morning, Capital One Securities analyst Phillips Johnston said that “while we do not yet know the coupon or conversion price, we believe the issuance will be a net positive for CHK as it will boost the company’s liquidity and thus provide more near-term breathing room for the company. CHK exited 2Q with ~$4MM of cash and ~$3.1B of availability on its $4.0B revolver, and we estimate that CHK will exit 3Q carrying ~$9.1B of total debt (principal amount). Our model assumes CHK will exhaust its liquidity by mid '20, and we estimate the new converts issuance will extend the liquidity wall to the end of '20.”

In mid-August, Chesapeake announced a five-year, $1 billion term loan used to finance tender offers of near-term or puttable debt.

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