Another round of bad news for Oklahoma City-based Chesapeake Energy as Fitch ratings has downgraded the company’s long-term issuer defaulting rating from ‘B’ to ‘B-‘, according to an announcement by the Chicago based firm.
Fitch indicated the downgrade reflects the heightened liquidity risk given the prospect for a lower and longer price recovery profile for Chesapeake. It also reflects the potential for low hydrocarbon prices to negatively impact the company’s plans to raise liquidity through asset sales and could also have an unfavorable impact on the next round of borrowing-base redeterminations.
As Fitch Ratings indicated, it believes it only increases the prospect that Chesapeake might more quickly and heavily rely on its revolving credit facility to fund upcoming debt maturities. In other words, Chesapeake might be forced to borrow more money from its lending facilities. However, Fitch also indicated it recognizes that Chesapeake still has considerable unencumbered assets that could be pledged to help support the security credit facility.
But Fitch also believes the downgrading puts the asset sales at risk. As Chesapeake announced in its quarterly and yearly earnings reports, it had $700 million net in asset sales in 2015 and hopes to make another $500 million to $1 billion in divestitures this year.
