Shale pioneer Chesapeake Energy files for bankruptcy
Chesapeake Energy Corp filed for Chapter 11 on Sunday, becoming the largest U.S. oil and gas producer to seek bankruptcy protection in years as it bowed to heavy debt and the impact of the coronavirus outbreak in energy markets, as reported Reuters.
The filing marks the end of an era for the Oklahoma City-based shale pioneer and comes after months of negotiations with creditors. Reuters first reported in March that the company had retained the services of debt advisers.
Chesapeake was co-founded by Aubrey McClendon, an early high-profile shale drilling advocate who died in a 2016 brutal car crash in Oklahoma while facing a federal bid-rigging investigation. In more than two decades, McClendon has grown Chesapeake from a small wild animal to one of America’s leading producers of natural gas. It remains the sixth largest producer by volume.
Current CEO Doug Lawler, who inherited a roughly $13 billion indebted company in 2013, managed to reduce debt with spending cuts and asset sales, but the historic rout in oil prices This year’s oil has left Chesapeake without the ability to refinance that debt.
“Despite the removal of more than $20 billion in leverage and financial commitments, we believe this restructuring is necessary for the long-term success and value creation of the business,” Lawler said in a press release announcing the filing.
Last year, Lawler spent $4 billion on a mistimed campaign to reduce Chesapeake’s dependence on natural gas. The purchase drove its shares lower and this year the value of Chesapeake’s oil and gas holdings fell by $700 million this quarter. The company warned last month that it may not be able to continue operations.
Chesapeake plans to eliminate about $7 billion of its debt, according to the release. A separate court filing said Chesapeake has more than $10 billion in liabilities and assets, respectively.
Chesapeake’s outlook has plunged this year as the coronavirus outbreak and a price war between Saudi Arabia and Russia sharply slashed energy prices and pushed its first-quarter losses to more than $8 billion. dollars. Its stock was trading at $11.85 on Friday, down 93% year-to-date, leaving it with a market value of $116 million.
The company has entered into a restructuring support agreement, which is backed by the lenders of its main revolving credit facility – some of which are providing $925 million in debtor-in-possession (DIP) financing to help fund operations during the bankruptcy proceedings.
The deal also has the support of parties from other creditors, including those who originated 87% of its term loan, and holders of 60% and 27%, respectively, of its junior notes. senior secured notes due 2025 and senior unsecured notes.
Although the statement did not name Chesapeake’s creditors, investment firm Franklin Resources is among the largest. On June 15, Reuters reported that Chesapeake’s impending restructuring would give control of the company to creditors, including Franklin.
Chesapeake has also agreed to key terms of a $2.5 billion exit financing, while some of its secured lenders and noteholders have agreed to back a $600 million offering of new shares, which will take place upon exiting the Chapter 11 process, the statement added.
Chesapeake’s filing with the U.S. Bankruptcy Court for the Southern District of Texas makes it the largest bankruptcy by a U.S. oil and gas producer since at least 2015, when law firm Haynes & Boone began publishing reports. restructuring data.
Chesapeake’s advisers are investment banks Rothschild & Co and Intrepid Partners, law firm Kirkland & Ellis LLP and turnaround specialists Alvarez & Marsal.
Reporting by David French in New York, Rama Venkat and Shariq Khan in Bengaluru and Jennifer Hiller in Houston; edited by Diane Craft