Fitch Assigns 'BB-' Rating to Chesapeake's $2 Billion Term Loan

  Fitch Assigns 'BB-' Rating to Chesapeake's $2 Billion Term Loan

Business Wire

NEW YORK -- November 08, 2012

Fitch Ratings has assigned a 'BB-' rating to Chesapeake Energy's $2 billion
unsecured term loan due 2017. A full list of ratings appears at the end of
this release. The Rating Outlook for Chesapeake remains Negative.

Proceeds for the term loan will be used to pay off the remaining balance on
the company's existing $4 billion term loan and to reduce borrowings on the
company's $4 billion revolver due 2015. The term loan will enhance liquidity
and will help to bridge funding needs as the timing of some of the remaining
planned 2012 asset divestitures may roll over into early 2013.

The ratings on Chesapeake reflect the company's leverage relative to reserves
and production,

offset somewhat by the sheer size of its asset base and operating profile. For
the quarter ended Sept. 30th, Chesapeake's balance sheet debt was over $16
billion compared with approximately $11 billion as of year-end 2011. The
company's strategy to transition to more liquids production is underway;
however, weak natural gas prices this year have still had a negative impact on
financial results. More than three-quarters of the company's current
production remains natural gas. The weak price realizations for natural gas
combined with aggressive spending in 2012 to accelerate liquids production has
resulted in negative free cash flow so far this year of slightly over $10
billion, some of which has been offset by asset sales and monetization to
date. For the quarter ended Sept. 30, adjusted debt (which includes preferred
equity, non-controlling interests and other Fitch calculations such as future
lease operating expenses related to volumetric production payment [VPP]
agreements, etc.) to flowing boe per day was approximately $35,000/boe/d and
its adjusted debt/proved developed reserves(PD) was over $12/PD.

The Negative Outlook reflects the funding issues the company faces while it
transitions to an increased emphasis on liquids production amidst a weak
natural gas pricing environment. Negative free cash flow in 2012 is expected
to be largely funded by asset sales and monetizations. However, fiscal 2013
may also be significantly free cash flow negative if aggressive spending plans
are maintained. Closing of the remaining planned 2012 asset sales in a timely
fashion with proceeds used to reduce debt balances combined with a balanced
2013 capital program that does not heavily rely on asset sales/monetizations
or debt issuances could result in the Outlook returning to Stable. Remaining
planned divestures for 2012/early 2013 may total as much as $6.5 billion which
could be used to significantly reduce debt balances relative to current
levels.

Liquidity is provided by the company's $4 billion secured revolver and
expected proceeds from planned asset sales/monetizations. Maturities are
relatively light in 2013 with only $464 million due and $1.6 billion due 2015.
Chesapeake has a significant amount of debt that can be prepaid in the near
term without a call premium. Key covenants are primarily associated with the
secured revolver and include maximum debt-to-book capitalization (70% covenant
threshold) and maximum total debt-to-EBITDA. The revolving facility was
recently amended so that the maximum debt-to-EBITDA is 6X at Sept. 30; 12.5x
at Dec. 31; 12.4.75x at March 31, 2013, 4.5x at June 30, 2013, 4.25x at Sept.
30, 2013, and 4x thereafter.

Fitch rates Chesapeake as follows:

--IDR 'BB-';

--Senior unsecured notes 'BB-';

--Senior secured revolving credit facility 'BBB-';

--Convertible preferred stock 'B''.

In addition, Fitch has assigned the following rating:

--$2 billion senior unsecured term loan 'BB-'.

The Rating Outlook remains Negative.

WHAT COULD TRIGGER A RATING ACTION

Positive: Future developments that may, individually or collectively, lead to
positive rating action include:

--Material progress in deleveraging the balance sheet relative to reserves and
production;

--Much stronger cash flow generation leading to consistent and significant
positive free cash flow generation.

Negative: Future developments that may, individually or collectively, lead to
negative rating action include:

--Negative free cash flow leading to rising debt levels relative to reserves
and production;

--Marked decrease in production levels or proved developed reserves relative
to debt.

Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.

Applicable Criteria and Relevant Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Rating Oil and Gas Exploration and Production Companies: Sector Credit
Factors' (Aug. 9, 2012);

--'Updating Fitch's Oil & Gas Price Deck', Aug.15, 2012.

Applicable Criteria and Related Research:

Updating Fitch -- Oil & Gas Price Deck -- Midyear Update

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648586

Rating Oil and Gas Production Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682334

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contact:

Fitch Ratings
Primary Analyst
Sean T. Sexton, CFA
Managing Director
+1-312-368-3130
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Dan Harris
Associate Director
+1-312-368-3217
or
Committee Chairperson
Mark A. Oline
Managing Director
+1-312-368-2073
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com
 
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