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Chesapeake Bonds Plummet To 27 Cents Of Par After Company Hires Restructuring Advisor
After numerous false starts and months of hollow hopes for the stakeholders of beleaguered gas producer Chesapeake Energy, including an activist stake built up by none other than Carl Icahn which was the source of much transitory joy, various notional reducing debt exchanges, and speculation of asset sales, the time is coming when the inevitable debt-for-equity restructuring, one which could wipe away most or all of the existing $2.6 billion equity tranche (down from $11 billion a year ago) is on the table.
According to the WSJ, Chesapeake has hired restructuring advisor Evercore "to shore up its balance sheet as commodity prices extend their decline." This means that Evercore will seek to further slash its debt, almost certainly be equitizing a substantial portion of it, and handing it over as equity in the new company to CHK's bondholders.
And while many saw the restructuring, and potential prepackaged bankruptcy, coming from a mile away, what precipitated it was the plunge in the company's liquidity as a result of the ongoing collapse in commodity prices. Just earlier today, nat gas hit the lowest price in 13 years, which meant that after ending 2014 with $4.1 billion in cash, the company is down to just $1.8 billion in cash, or about 1-2 quarter of liquidity at the current cash burn rate.
But while CHK's stock has imploded, falling 79% this year to around $4.09 per share or a $2.7 billion market cap, the real story is in the company's bonds.
Chesapeake’s $1.3 billion in bonds due in 2020 bearing 6.625% interest recently traded at 29 cents on the dollar, down from 47 cents late last month, according to MarketAxess.
Worse, the company's 2023 bonds which were trading at par as recently as late May, just rumbled to a record low 27 cents on the dollar.
What is troubling is that Chesapeake has already taken steps to reduce its debt load, and is offering to exchange bonds at a discount for up to $1.5 billion of new debt, while offering a partial priming and a stronger claim on the company’s assets. As the WSJ adds, the proposed swap follows a deal Chesapeake cut with its banks earlier this year that allowed it to issue the new high-ranking debt. In return, Chesapeake agreed to secure its $4 billion credit line with a top-ranking claim on its assets.
In other words, what Chesapeake is doing is using and abusing the goodwill of its creditors, both secured and unsecured, to extract every last penny from them while promising the sun and the moon to both groups.
This is hardly new: "Dozens of money-losing oil-and-gas companies have issued new debt this year, sometimes swapping it for discounted bonds, in an effort to ride out the slump in prices. SandRidge Energy Inc., Midstates Petroleum Co. and Halcon Resources Corp. all have done such deals this year."
However, in the aftermath of the most recent implosion in the high yield space, of which Chesapeake is a proud member, we expect that the banks, realizing at this point they are only throwing good money after bad will slam the issuance (and voluntary refi) window shut, forcing the company to burn the last of its cash which at current commodity prices should be gone by the summer of 2016, at which point it will have no choice but to file for bankruptcy. The only question is whether it will be a prepackaged consensual affair or a free-fall Chapter 11.
Our only question is whether Carl Icahn will be as generous with lending Chesapeake the Debtoi In Possession loan it will need, as he was in building up his 11% "BTFD" equity stake.
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Aubrey McClendon should have been fair warning to everyone about this company.
the nicest thing you can say about the guy is his niece has nice tits!
what the fuck?
Anyway, an Ogle Mole emailed us yesterday and mentioned that Aubrey McClendon was Kate Upton’s uncle or something. Intrigued, I decided to see what I could dig up. This is what I learned:
• Aubrey McClendon married a woman named Katie Upton in St. Joseph Michigan in 1981. For what it’s worth, Katie’s grandpa was the founder of Whirlpool ($$$).
• Katie Upton, Aubrey’s wife, is a (first?) cousin of US Congressman Fred Upton. Coincidentally, he is the chair of the House Energy and Commerce Committee.
• Kate Upton, the ridiculously hot supermodel, is Fred Upton’s niece.
• Therefore, Kate Upton (the model) is a cousin-in-law of Aubrey McClendon…I think.
The bit about Fred Upton is the interesting part.
It ain't what ya know...
icahn, lulz
Add this to the fire.
Pennsylvania Attorney General Sues Chesapeake Energy Over Marcellus Shale Gas Royalties
http://powersource.post-gazette.com/powersource/companies/2015/12/09/Pen...
The same thing may be coming from Louisiana too. I'm saying that because of a post on a message board a few months back. The board is used mostly by landmen and royalty owners. The states usually own some royalties although that varies from state to state.
Carl Icahn is having a bad week.
A BAD WEEK?
RIG. FCX. CHK. I know I am forgetting some. hell, lately everything he touches turns to shit.
LNG.
Fired the CEO last night.
http://fuelfix.com/blog/2015/12/14/investors-icahn-react-to-chenieres-ce...
The fuse is lit. How long do we have? Can we make it 4 months?
Heads are rolling for real now.
Where is guillotine man?
Stinks of 2007.
I can promise you SandRidge isn't far behind.
any input on these folks who smell like crooks to me? https://www.ridgewoodenergy.com/Home.aspx
Hmm...I don't know what to make of this. May be completely meaningless.
http://fuelfix.com/blog/2015/07/21/ridgewood-launches-huge-deep-water-gu...
"Ridgewood also has managed significant capital from New York-based Riverstone Holdings since 2010."
http://www.riverstonellc.com/
I did not see any sign of Ridgewood listed with the "Industry Partners". Neither do I see LLOG Exploration or Noble, the two E&P companies mentioned in the article. Maybe the amount Riverstone has invested was not enough to make the cut to appear on their website. Maybe Ridgewood serves as a matchmaker for Riverstone's LBO ventures.
Unknown. Just piqued my interest for some reason.
Yeah I definitely call bullshit on that. There is no way they are drilling gulf wells that cheap.
Finally...........
Neptune's in Pisces = oil & gas found everywhere, by nearly everybody
This carnage isn't over by a long shot
"Chesapeake Bonds Plummet To 27 Cents Of Par After Company Hires Restructuring Advisor "
You all think prices will never rise again???!
There are REAL physical assets here; -this ain't Yahoo, dammit.
The Bonds are probably going to be settled for significantly more than 27cents when all is said and done.
Shark infested waters... NO HEDGE? -Well WTF???
Jezus H.... -Hasn't anyone been paying attention as to how this shit works out at all??
So, you fucked up trusting fund managers with no skin in the game who got paid the moment you walked in...?
The rest of the story is: 'Distressed' sold off for nickels by funds forced to by derivative pressure and redemptions -and eventually the lot is paid off @ 85/90 cents. ( Let's NOT talk about the Hedge you did have, or should have had: which woulda maybe saved your ass from being sold SHORT by those no skin in the game fundboyz... )
Bond holders usually get paid. The vultures don't often go hungry ferfuckGoldSachs..
Don't BE a muppet fuckwit.
No joke, this is possibly a good buying opportunity. One would definitely need to look at the company's assets before buying the bonds, but it's generally hard to lose money when buying stuff for 27 cents. Even if the recovered amount is only 50 cents, that's still nearly 100% gain.
"t's generally hard to lose money when buying stuff for 27 cents. "
Unless it's worth nothing....
A lot of Cheasapeake's assets are nat gas/tight oil leases many of which are
only profitable at $48/bbl, $6/MCF... At current prices, those leases are worthless, and it's a long time to pay lease payments, on undrillable land.
A lot of the rigs, may if there is a demand collapse, price out at 10-20 cents on the dollar, and may need to sit a long time before utilization...
What is troubling is that Chesapeake has already taken steps to reduce its debt load, and is offering to exchange bonds at a discount for up to $1.5 billion of new debt, while offering a partial priming and a stronger claim on the company’s assets.
The energy field has become the new CDO playground as the assets have been sliced and diced----how many tranches ??