Chesapeake stock soars on news of credit deal

The financial moves by Chesapeake Energy, which included a $1.5 billion new bank loan resulted in a soaring volume of the company’s shares in Wednesday’s trading.

Chesapeake stock finished up 17 percent at the end of the day’s trading, closing at nearly 74 cents a share which was an eleven cent increase for the day. The company experienced a 25-year low on Nov. 19 when shares traded for only 56 cents.

Chesapeake shares were among the most actively traded on major U.S. exchanges and more than the full-day average of nearly 90.7 million shares.

Trading fired up after Chesapeake announced it had obtained the $1.5 billion from four banks for a four and one-half year term loan. Chesapeake said it will use the proceeds to finance a tender offer for unsecured notes issued by its Brazos Valley Longhorn LLC and Brazos Valley Longhorn Finance Corp. subsidiaries. 

“Chesapeake expects these transactions to improve its financial flexibility, as they will allow Brazos Valley and its subsidiaries to support Chesapeake’s current and future debt,” the company said in a statement.

Chesapeake also said earlier that it has commenced “private offers” of up to $1.5 billion of its new 11.5% senior secured second lien notes due 2025, in exchange for certain existing unsecured notes. The existing notes subject to the exchange offer include a 7.0% note due 2024, an 8.0% note due 2025, 8% and 7.5% notes due 2026 and an 8.0% note due 2027.

Chesapeake’s most active debt instrument, the 8.0% notes maturing in 2027, traded Wednesday at 57.50 cents on the dollar, up sharply from 47.90 cents on the dollar on Tuesday.

Analyst Neal Dingmann at SunTrust Robinson Humphrey told Market Watch “most importantly,” the amendments to Chesapeake’s credit facility increases the company’s borrowing ability, to a leverage ratio of 4.5-times from 4.0-times. In the company’s 10-Q filing of audited third-quarter results, the company defined leverage ratio as the ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation, amortization and exploration expense.

Dingmann said that while he views the financing deals as a “positive” for Chesapeake, as it gives the company with additional financial flexibility for future transactions, he still believes “large asset monetizations” are critical in addressing debt maturities over the next few years, as leverage remains well above the company’s peer group.

“While the newly announced transactions appear to buy Chesapeake time, we believe asset sales remain critical to the going concern,” Dingmann wrote in a note to clients.

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