Leaders of Oklahoma City-based Chesapeake Energy have expressed for the first time they have doubts about the ability of the company to survive if they are unable to restructure massive debts through a Chapter 11 reorganization. It is clear the company is teetering on bankruptcy.
In a filing with the Securities Exchange Commission on Monday, the company founded by the late Aubrey McClendon reported a loss of $83 billion on top of more than $9 billion in debt. A year ago, the company’s loss was $21 million.
“We currently have no access to capital and other financial markets. In response to the lack of new capital and funding, we are considering strategic alternatives, which may include but are not limited to additional expense reductions; seeking a restructuring, amendment or refinancing of existing debt through a private restructuring; and reorganization under Chapter 11 of the Bankruptcy Code,” stated the company in the filing.
Chesapeake wrote down an impairment of $8.5 billion and a net loss of $8.2 billion from operations.
The volatility of oil and natural gas prices on top of the COVID-19 pandemic hurt the company. The SEC filing indicated Chesapeake leaders believe if the current depressed prices persist, then the firm’s liquidity and ability to comply with its financial covenants in the next 12 months will be adversely affected.
“Based on our current forecast, we do not expect to be in compliance with our financial covenants beginning in the fourth quarter of 2020. Failure to comply with these covenants, if not waived, would result in an event of default under our revolving credit facility, the potential acceleration of outstanding debt thereunder and the potential foreclosure on the collateral securing such debt, and could cause a cross-default under our other outstanding indebtedness.”
Chesapeake repeated its claim it has engaged advisors to help with evaluation of strategic alternatives which might include a restructuring or reorganization under Chapter 11.
For the 2019 fourth quarter, Chesapeake reported a net loss of $324 million and a net loss available to common stockholders of $346 million, or $0.18 per diluted share, compared to net income of $605 million and net income available to common stockholders of $576 million, or $0.57 per diluted share, for the fourth quarter 2018.
As of March 31, 2020 and December 31, 2019, Chesapeake had a cash balance of $82 million and $6 million, respectively. As of March 31, 2020 and December 31, 2019, it had a net working capital deficit of $442 million and $1.141 billion, respectively. As of March 31, 2020 and December 31, 2019,the company’s working capital deficit included $420 million and $385 million, respectively, of debt due in the next 12 months.
The company admitted in the SEC filing that some of its counterparties have required Chesapeake to post “collateral as financial assurance of our performance under certain contractual arrangements such as gathering, processing, transportation and hedging agreements.”
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Source: SEC