Chesapeake Energy Works With Advisers To Reduce Debt Load

   (FROM THE WALL STREET JOURNAL 12/15/15) 
   By Matt Jarzemsky and Ryan Dezember 

Chesapeake Energy Corp. is working with restructuring advisers at Evercore Partners Inc. to shore up its balance sheet as commodity prices extend their decline, according to people familiar with the matter.

Evercore's bankers are advising the natural-gas producer on potential measures to reduce its $11.6 billion debt load, such as exchanging existing bonds at a discount for new securities or selling assets, the people said.

The Oklahoma City-based company, co-founded in 1989 by famed wildcatter Aubrey McClendon, became one of the dominant U.S. gas explorers during the shale boom.

Fueled by cheap debt, Chesapeake expanded aggressively in Ohio, Texas and other parts of the U.S., becoming the country's second-largest, natural-gas producer behind Exxon Mobil Corp.

But the tumble in natural gas prices has hurt the company, which has posted three straight quarterly losses this year. Chesapeake ended September with $1.8 billion in cash, down from $4.1 billion at the end of 2014, according to regulatory filings.

Chesapeake's share price has fallen nearly 80% this year to $4 per share. Its market capitalization currently stands at roughly $2.8 billion, down from $11.4 billion a year ago.

Natural gas prices fell to their lowest point in more than a decade Monday, as record-high December temperatures in New York and other cities sap demand for heating fuel.

Prices are down 35% this year and 69% below their February 2014 highs, driven largely by oversupply after advances in drilling techniques unlocked new reserves in shale-rock formations across the U.S.

Chesapeake's bonds have been among the hardest hit in a recent selloff of junk-rated energy-company debt, driven in part by continued declines in oil and gas prices. A broader decline in high-yield bond and loan prices has further weighed on energy companies' debt.

Chesapeake's $1.3 billion in bonds due in 2020 bearing 6.625% interest recently traded at 28 cents on the dollar, down from 47 cents late last month, according to MarketAxess.

Chesapeake already has taken steps to reduce its debt load. The company is offering to exchange bonds at a discount for up to $1.5 billion of new debt. Investors who take the offer would accept a reduction in the face value of their debt in exchange for a stronger claim on the company's assets.

The proposed swap follows a deal Chesapeake cut with its banks earlier this year that allowed it to issue the new high-ranking debt. In return, Chesapeake agreed to secure its $4 billion credit line with a top-ranking claim on its assets.

Dozens of money-losing oil-and-gas companies have issued new debt this year, sometimes swapping it for discounted bonds, in an effort to ride out the slump in prices. SandRidge Energy Inc., Midstates Petroleum Co. and Halcon Resources Corp. all have done such deals this year.

A Texas drilling venture Mr. McClendon formed after his ouster from Chesapeake in 2013 last month sold $530 million in bonds carrying a 13% yield. The collapse in oil and gas prices has forced others to file for bankruptcy protection to deal with their debts.

(END) Dow Jones Newswires

December 15, 2015 02:47 ET (07:47 GMT)

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