Franklin Prepares for Potential Chesapeake Debt Restructuring

By Alexander Gladstone 

Mutual-fund company Franklin Resources Inc. is taking steps to prepare for a potential debt restructuring or bankruptcy of indebted oil-and-gas driller Chesapeake Energy Corp., according to people familiar with the matter.

Franklin, which owns a substantial chunk of Chesapeake's nearly $9 billion in debt and holds a 12.4% equity stake in the company, has hired law firm Akin Gump Strauss Hauer & Feld LLP for negotiations in advance of a possible default, these people said.

Chesapeake, Franklin and Akin didn't immediately respond to requests for comment. The company's stock price fell to 19 cents Thursday amid a lengthy slide in oil prices as the coronavirus pandemic slowed economic growth and an oil-price war between Russia and Saudi Arabia flooded global markets, sending crude prices to near-two-decade lows.

The Saudis and Russians reached an agreement in principle Thursday to resolve their feud over market share, The Wall Street Journal reported, joining a global coalition of other countries seeking to ease the glut in oil supply. Brent, the global crude benchmark, and its U.S. counterpart rallied on the tentative deal.

Chesapeake is known as a pioneer of the U.S. shale industry, one of the first American companies to deploy horizontal fracking techniques on a large scale.

The energy company has completed a series of financial engineering exercises to trim its debt over the years through out-of-court bond exchanges. But the recent collapse in commodity markets has made it difficult for the company to address its near-term debt obligations and has hammered its stock and bond prices. It has hired law firm Kirkland & Ellis LLP and financial adviser Rothschild Inc. to craft a restructuring strategy, according to people familiar with the matter.

U.S. oil-and-gas drillers are under pressure to repay the hefty tab they ran up with banks and bondholders to turn America into the world's largest energy producer. The deterioration in oil prices has undermined their ability to pay back what they owe, pushing many drillers and oil-field-service contractors to seek concessions from creditors or consider bankruptcy.

Chesapeake faces a $136 million coupon owed to junior bondholders on July 1 and a $192 million bond maturity payment due Aug. 1.

Even before the recent plunge in oil prices, Chesapeake had warned that slumping energy markets would jeopardize its ability to continue as a going concern.

Write to Alexander Gladstone at [e-mail]

(END) Dow Jones Newswires

April 09, 2020 12:34 ET (16:34 GMT)

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