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Chesapeake Energy is preparing for potential bankruptcy

June 15, 2020
American energy company Chesapeake Energy is preparing for potential bankruptcy, which could lead to the change of control of the company to its senior creditors.

Chesapeake was already in a weak position before the COVID-19 outbreak that led to a sharp drop in oil demand. At its peak more than a decade ago, the company was valued at $37.5 billion. But its success in extracting fuel from deep rocks contributed to a strong oversupply of gas.

In the first three months of 2020, the company lost $8.5 billion as its value fell along with commodity prices.

The company is negotiating a restructuring support agreement under which holders of the so-called FILO term loan can get most of the capital in bankruptcy.

Chesapeake, whose debt is about $9 billion, is debating whether to skip the June 15 interest payment date (issue 5.375% till 2021 and two issues 8% till the January 2027 - 1 and 2) or to use the grace period during negotiations with creditors.

According to one of the sources, the company has also started attracting creditors to finance its operations during the bankruptcy.

Let us remind you that in April 2020, Moody's downgraded Chesapeake Energy Corporation's (Chesapeake) Corporate Family Rating (CFR) to Ca from Caa1, its Probability of Default Rating (PDR) to Ca-PD from Caa1-PD, its first lien, "last out" term loan rating to Caa1 from B3, its second lien notes rating to Ca from Caa2, and its senior unsecured notes ratings to C from Caa3. 

In their report, Moody’s mentioned that they downgraded the rating, among other things, due to "depressive commodity price conjuncture, extremely limited access to capital and a high probability of restructuring in the near future».

S&P also changed its rating from CCC/Negative to CC/Negative on May 1, 2020.
Company — Chesapeake Energy
  • Full name
    Chesapeake Energy Corporation
  • Registration country
    USA
  • Industry
    Oil and gas