Chesapeake continues effort to reduce near-term maturities

Chesapeake Energy Corp. (NYSE:CHK) closed a private placement of $1.25 billion of unsecured convertible senior notes, with a provisional call feature that will give Chesapeake an opportunity to convert the debt to equity in three years if the company's stock trades above 130% of the conversion price for a specified period. The company's cash on hand as of September 30, and pro forma for the convertible debt issuance, was approximately $1.0 billion with no borrowings on its revolving bank credit facility.

Additionally, today the company closed privately negotiated purchase and exchange agreements under which the company exchanged approximately 110.3 million shares of its common stock for (i) 134,000 shares of 5.00% Cumulative Convertible Preferred Stock (Series 2005B), (ii) 606,271 shares of 5.75% Cumulative Convertible Preferred Stock and (iii) 553,007 shares of 5.75% Cumulative Convertible Preferred Stock (Series A). This amount of preferred stock represents approximately $1.2 billion of liquidation value, which was exchanged at a discount of over 40%. As a result of these exchange transactions, the company's common shares currently outstanding are approximately 886 million, before giving effect to future dilution from convertible securities.

Following Chesapeake’s update, Seaport Global Securities said it estimates Chesapeake will exit 2016 with $4.1B in liquidity. “Despite commendable efforts to reduce near-term maturities CHK’s elevated leverage and expected FY17 outspend on a declining production trajectory remain of concern to us; this keeps us away from the stock until we gain further clarity on management’s game plan to address its transportation contracts,” the analysts said.


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