Chesapeake Energy Corporation (NYSE: CHK) is out with a private placement of convertible preferred shares this morning in a $600 million capital raise.  Chances are extremely high that even if you wanted to invest in this natural gas giant in this way it is unavailable to you.  This new capital is separate from and in addition to another recent capital raises after the company outlined steps to allow it to raise up to $5 billion over the next two years in a quest to chop down its debt and to increase its debt ratings.

The announcement was that Chesapeake has “privately placed with qualified institutional buyers in North America $600 million of a new series of Chesapeake 5.75% cumulative non-voting convertible preferred stock (Series A) with a liquidation preference of $1,000 per share.”

Chesapeake plans to use the proceeds from the placement to repay senior indebtedness. The deal is expected to close on May 17, 2010.

As noted above, this placement is separate from and in addition to the preferred stock that is the subject of the purchase agreements and option to purchase with investors in Asia announced earlier this week on May 10, 2010.

The annual dividend on each share of preferred stock is $57.50, payable quarterly.  The preferred stock is not redeemable; but will be convertible at any time at the option of the holder into about 35.7961 shares of Chesapeake common stock, which is based on an initial conversion price of $27.94 per common share. The interesting notion here is that this preferred stock will be subject to mandatory conversion after May 17, 2015 into Chesapeake common stock, at the option of the company,If the closing price of Chesapeake’s common stock exceeds 130% of the conversion price for 20 trading days during any consecutive 30 trading day period.

As this is a private placement, these securities are not registered and may not be offered or sold in the United States (at least absent registration or an applicable exemption…).

That $27.94 conversion price is an interesting one.  Shares today are $23.78 after a gain of 2%.  The 52-week range is $16.92 to $30.00.

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JON C. OGG

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