Chesapeake Energy Corp, the exploration and production firm which has been at the heart in the U.S. shale boom of the last decade, is planning the possibility of filing for bankruptcy and available at Bankruptcy HQ`s website as it faces an unprecedented drop in energy costs, sources who have been in the know reported on Wednesday.
Making Preparations for Bankruptcy
The Oklahoma City-based company co-founded by natural gas activist Aubrey McClendon, has had talks with creditors regarding an upcoming loan that could help in bankruptcy proceedings, sources claimed. The loan could be as high as 1 billion dollars, though its size is always fluctuating according to one source said.
These loans, also called debtor-in use financing, are vital for companies who seek Chapter 11 bankruptcy protection because they allow them to continue the most business-like operations possible in legal procedures.
The talks between Chesapeake and its creditors about whether or not to seek bankruptcy financing are in the early stages and the company hasn’t yet made a decision on how it intends to settle its debts, sources have advised. . She may try to convince creditors to modify her debts outside bankruptcy, sources told us, and asked not to be named because the subject is private. Chesapeake did not respond immediately to a request to comment.
Chesapeake tried to shift from gas production to a stronger concentration on oil production after the energy price conflict in the region between Saudi Arabia and Russia earlier this year ended his plans, as well as the market for crude. . The coronavirus virus wreaked another blow, which reduced the energy demand, closing large areas of the world economy.
Chesapeake employs around 2300 employees at the end of 2013, is now facing massive payments due this year for a portion of its $9 billion debt. The interest and maturities together total more than 1 billion, as per the regulatory report.
Chesapeake plans to defer the $ 192 million installment scheduled for August which will add the urgency of discussions about debtors, one the sources told. Chesapeake is also facing an $ 136 million bond starting on July 1.
Chesapeake is also weighing the possibility of getting an additional capital boost that will likely occur following an insolvency filing According reports from one source. The company isn’t currently looking forward to receiving aid in the shape of US government assistance to businesses that are affected by the coronavirus outbreak The source also said.
The company announced the month of January, it cut its debt by $900 million. In February, it also announced that it had enough liquidity of about $1 billion. 1.4 billion to meet the looming due dates for debt. . However, a large portion of the money is part of a revolving line credit that could become smaller, according to the ratings firm Moody’s Investor Service. The company has recently stopped paying it’s dividend for a group that includes convertible preferred stock.
This month Moody’s reduced Chesapeake’s credit score deep into the junk category, which means borrowing extremely costly due to the probability of default. The change in ratings is a result of declining energy prices, along with an erosion in the company’s liquidity and “very restricted availability of capital” Moody’s said. Moody’s said it was predicting the company to have a “high probability of immediate restructuring”.
Chesapeake has operations in five US states, which includes Pennsylvania, Texas and Louisiana.
The company carried out an reverse stock split in April in order to avoid being removed by the New York Stock Exchange. The shares of the company have plummeted by more than 80% in the last year, which gives its market capitalization of less than $300 million. [nL3N2C11TFThe company’s share price has fallen by more than 80%.
Chesapeake began to revamp its balance sheet at the close of the year and was able to delay some deadlines for debt. However, certain of the company’s debts are sold at a price that suggests that investors are almost certain it will never be paid back in the full amount.
Its 11.5 percent bonds due in 2025, that were announced in December as part of a bigger restructuring of its liabilities the bonds are trading at 8 cents per dollar, according to figures from Refinitiv. Another set of bonds due around a year later is trading at about 4 cents.
Fall In Disgrace
In the event of bankruptcy filing In the event of a bankruptcy filing could be the culmination of a lengthy reverse of fortunes for a firm that is a part of the S&P 500 index less than 20 years since its inception and has helped transform the energy sector.
Chesapeake was founded with a modest investment made in 1989 by Oklahoma businessmen Tom Ward and McClendon, McClendon later becoming the company’s long-time president and CEO.
Under the leadership of McClendon, Chesapeake spent $ 43 billion over the course of 15 years to secure areas that span the United States, helping to start the process of extracting natural gas and untapped oil from the rock formations. Shale is an environmentally-controversial method , has come to be referred to as hydraulic fracture.
McClendon was an unabashed advocate in support of natural gas insisting that it could be a substitute for coal and oil. As of 2005 Chesapeake is the 2nd largest natural gas producer across the United States, behind the massive Exxon Mobil Corp.
An ensuing oversupply of natural gas led to the price to fall. In March of this year an indictment by the federal government charged McClendon in a conspiracy to stifle the price of land through rigging rental agreements while running Chesapeake.
McClendon in the moment, called the charges “bad and unheard of” and pledged for “prove that I am innocent and get my name cleared.” McClendon died in a crash with a car the following day. The state medical examiner concluded that the death was due to an accident.
Reporting is done by Mike Spector and David French in New York; Editing by Matthew Lewis