Tuesday, December 22, 2015

"Chesapeake’s Leverage Unsustainable Amid Low Commodity Prices: Citi" (CHK)

$4.05, down a penny for the country's #2 natural gas producer.
From Barron's:
Citi’s Marisa Moss and her team met with Chesapeake Energy (CHK) management recently, however, they weren’t able to persuade her that things are going well.

Moss reiterated an Underperform rating on the company’s debt, writing that their levered capital structure is unsustainable, given the ongoing low commodity prices it faces.
More detail from the note:
Exchange Offer Review: On December 2nd, Chesapeake announced it was offering unsecured note holders the option to exchange into a new $1.5BN 8.00% second lien note due 2022. Shorter-dated notes were given a higher priority level in the case of oversubscription as well as a higher exchange consideration. On December 16th, Chesapeake announced the preliminary results of the exchange ($2.8BN of total par amount was tendered translating into a $1.7BN 2nd lien), pushed back the early deadline to December 18th, and announced it had increased the maximum potential size of the new second lien to $3.0BN from $1.5BN. In particular, we think the company pushed back the deadline in the hopes that additional short-maturity paper would tender.

Early Tender Results Are In (Again): On December 21st, Chesapeake announced its final early tender results. The total amount tendered increased to $3.8BN from $2.8BN, which equates to a $2.35BN 2nd lien size and represents ~41% of the total par amount of unsecured notes....MORE

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