Chesapeake Energy recently reported that it has piled up more than enough money to pay bondholders through the end of 2018. By doing this, the natural gas producer cleared an overhang that had been dogging it for more than three years, notes Bloomberg. The natural gas explorer closed a private placement of $1.25 billion of debt on Wednesday.
Enough cash to pay bondholders
Chesapeake Energy shored up capital for debt payments just 10 months after it declared that it had no plans to file for bankruptcy. In a statement, the Oklahoma City-based company said it had closed a $1.25 billion private placement of unsecured convertible notes that it can convert to shares under certain circumstances in 2019. The natural gas producer also said that in addition to an undrawn revolving credit line, it now has $1 billion in cash on hand.
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The Oklahoma City-based company said that if its stock trades above 130% of the conversion price for a particular period, then it could convert the 10-year notes to equity in three years. In addition, the natural gas producer said it exchanged its common shares for preferred shares, representing about $1.2 billion of liquidation value, at a discount of around 40%, notes Reuters.
In a statement, CEO Doug Lawler said, “With the cash proceeds from the convertible note offering, we have taken measures to provide excess liquidity to address the remaining maturities of our debt through 2018, before any incremental proceeds from the potential asset sales that we are currently working.”
Improving Chesapeake Energy’s capital structure
Chesapeake Energy is struggling with a large amount of debt taken for shale development. Since mid-2013, the second-biggest U.S. gas producer has sold billions of dollars in assets, fired thousands of workers and suspended drilling projects because a rout in gas prices aggravated the debt burden incurred during the time of the late Aubrey McClendon, the co-founder of the natural gas producer. Lawler, his successor, said that repairing the company’s finances was his top priority.
Lawler said they had improved their capital structure substantially through the transactions that closed this week. He added that these transactions represent important steps toward reaching their financial aims of growing production within free cash flow along with $2 to $3 billion of debt reduction. As of June 30, the natural gas producer’s total debt stood at about $8.7 billion. Cash on hand was about $1 billion as of Sept. 30, pro forma for the convertible debt issuance.