Chesapeake Energy taps restructuring counsel

by Alexander Gladstone, and Jon Berke

Chesapeake Energy recently brought on restructuring attorneys from Kirkland & Ellis to discuss balance sheet solutions, said three sources familiar with the matter.

The Oklahoma-based natural gas giant faces a wave of bond maturities, including one due in just over a month.

Late last year the company rolled out an exchange offer across all 10 tranches of its unsecured bonds, aimed at delevering its balance sheet and addressing the near-term maturities by exchanging them at a discount into new 8% second lien notes. While the exchange succeeded in cutting total debt by USD 1.4bn to USD 10.4bn, the results were lackluster as only 24% (USD 780m face amount) of holders of nearer-dated bonds maturing through 2019 tendered, while the majority of acceptances (USD 3.8bn) came from holders of longer-dated notes.

As of 30 September, Chesapeake had total liquidity of USD 5.75bn, comprising USD 1.76bn of unrestricted cash, and full availability on its USD 4bn first lien revolver due 2019. Going forward, the company could use that liquidity to fund the 15 March maturity of its USD 476m 3.25% unsecured notes, sources said.

The company will subsequently face a spring redetermination on its revolver borrowing base, which is expected to further reduce liquidity. Going forward, addressing two bond maturities in 2017 amounting to over USD 1bn will be a challenge for the company, buyside and sellside sources said.

Given the prospect that a restructuring could loom on the horizon, there are some doubters in the market as to whether Chesapeake will use its liquidity to pay off the upcoming March maturity, reflected in the bond’s trading levels below par. The USD 476m 3.25% notes traded at 95 today, according to MarketAxess.

Meanwhile, the USD 2.4bn 8% second lien notes traded at 40 today for a 28.261% yield, down from 45 on 28 January. Its USD 822m 6.625% unsecured notes due 2020 traded at 25 today, down from 28 on 29 January.

Chesapeake’s stock traded at USD 3.06 today for a market capitalization of USD 2.03bn.

Kirkland has worked with Chesapeake dating back to 2010, added another source familiar with the matter. The firm’s website indicates that its litigation practice has represented the company in state and federal courts on issues related to oil and gas leases.

Chesapeake declined to comment. Kirkland did not respond to requests for comment.

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