Chesapeake Energy kicks off bankruptcy countdown

Chesapeake Energy Corp. is preparing to file for bankruptcy as soon as a week after the pioneering shale driller missed an interest payment due on Monday, according to people familiar with the matter.

The payment of about $10 million to bondholders was due Monday. The missed payment begins a grace period allowing Chesapeake to continue talking to creditors, but the company is expected to file for bankruptcy in weeks or even days, the people said.

The Oklahoma-based company, a pioneer in shale fracturing methods, brought in Alvarez & Marsal as a restructuring advisor, alongside law firm Kirkland & Ellis LLP and investment banker Rothschild & Co., said people familiar with the matter.

Chesapeake Revolving Lenders have hired law firm Sidley Austin LLP and investment bank Houlihan Lokey Inc., while another group of senior lenders are working with advisers from Davis Polk & Wardwell LLP and Perella Weinberg Partners, said one of the people.

The company brokered a deal in which senior lenders would be willing to convert their holdings into the bulk of the company’s equity. Funding for the bankruptcy would come from a bankruptcy loan of about $1 billion, the person said.

A representative for Chesapeake did not respond to requests for comment.

Chesapeake said last month it was analyzing all available strategic alternatives to address its capital structure and improve its financial position, including considering bankruptcy as an option. The company has more than $9 billion in debt on its books.

Co-founded in 1989 by the late Aubrey McClendon and her partner Tom Ward, Chesapeake was a key player in the US shale fracking boom. But the huge debt he incurred by acquiring land and expanding his business became unsustainable due to the protracted slump in energy markets.

During a previous oil crisis a few years ago, Chesapeake managed to avoid bankruptcy by conducting a series of out-of-court debt swaps. However, financial engineering is not up to par with the most recent price crash, driven by a drop in demand due to the coronavirus pandemic coupled with a global supply glut.

The collapse in commodity markets earlier this year made it difficult for the company to meet its short-term debt obligations and sent its stock and bond prices plummeting. The company recently said it doubted its ability to remain a going concern when it announced its loss of about $8 billion in the first quarter, compared to a loss of $21 million the year before.

Write to Alexander Gladstone at alexander.gladstone@wsj.com

Comments are closed.