Chesapeake Slices Debt by Half-Billion Dollars to Ease 2017 Loadby
Gas driller continues buying up notes trading at discounts
Chesapeake's debt load is almost three times its market value
Chesapeake Energy Corp. lightened its debt load by more than a half-billion dollars in the past six months and is snatching up bonds due in 2017 and 2018 at rock-bottom prices.
In the latest step to whittle down a debt load that’s almost three times the size of its market value, Chesapeake gave bondholders 17.26 million newly-issued shares at the end of last week in exchange for $105 million in senior notes. That brings the total reduction in potential debt obligations coming due in 2017 by $594 million, or 27 percent, since September, Chief Executive Officer Doug Lawler told investors and analysts on Tuesday.
The cash-strapped gas driller, which lost about $40 million a day last year, has been battered by plunging energy prices. To combat investor fears about Chesapeake’s ability to pay creditors, it has employed a combination of debt exchanges, asset sales and open-market purchases of its own cut-rate notes to reduce the debt burden. Chesapeake spent $99 million buying its own debt back from bondholders during the past 5 1/2 months, according to a presentation Lawler delivered to the Scotia Howard Weil Conference in New Orleans on Tuesday.
Chesapeake is concentrating now on 2017 and 2018 “maturity management,” Lawler said in the presentation.
Chesapeake’s stock price has more than tripled in the past five weeks after finishing 2015 as the year’s worst performer in the Standard & Poor’s 500 index. Lawler has been cutting spending to cope with the downturn in energy markets and surprised analysts and investors last month when asset sales raised more than twice as much as targeted.
In the stock-for-debt exchange announced on Friday, Chesapeake said the 17.26 million shares it issued had a value of $73 million, or the equivalent of $4.23 each. That represented a 13 percent discount to yesterday’s $4.88 closing price, according to Bloomberg calculations.
The exchange involved 2.5 percent contingent convertible senior notes that mature in 2037 and 6.5 percent senior notes due next year, according to the filing.
The driller is looking at an addition $500 million to $1 billion in asset sales, Lawler said.
Chesapeake is the second-largest U.S. gas producer, behind Exxon Mobil Corp.