Chesapeake Issues More Stock to Pay Down Debt

The country’s second-largest natural gas producer, Chesapeake Energy Corp. (NYSE: CHK), announced Thursday morning that it had agreed to issue some 28.1 million shares of common stock in exchange for $153 million in outstanding debt. At Wednesday’s closing price of $4.36 per share, the value of the shares is approximately $122.5 million.

The transaction indicates that there is at least one person or entity that believes Chesapeake is on the road to recovery. After all, giving up a first-in-line bond for last-in-line common stock in the event of a bankruptcy is about as strong a show of support as a creditor can make. Chesapeake’s share price will need to rise more than $1.00 per share to make up the full amount of the exchanged debt.

Chesapeake is extinguishing obligations on the following notes:

• $90 million aggregate principal amount of its 2.5% contingent convertible senior notes due 2037 (with May 2017 put rights)
• $38 million aggregate principal amount of its 6.5% senior notes due 2017
• $10 million aggregate principal amount of its 2.25% contingent convertible senior notes due 2038 (with 2018 put rights)
• $15 million aggregate principal amount of its floating rate senior notes due 2019

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Last week when Chesapeake reported first-quarter results, the company announced the sale of lease rights to Newfield Exploration for some $470 million.

Chesapeake also said at the time that it has either closed or has signed sales agreements valued at about $1.2 billion so far in 2016, and from which the company expects to realize about $950 million in net proceeds. At the end of March, the company’s long-term debt totaled approximately $10.1 billion.

While this sort of deal is a good thing for Chesapeake, natural gas prices closer to $3 per thousand cubic feet would go a lot further to putting the company in a more solid financial position. Natural gas for June delivery traded at $2.17 per million BTUs shortly after Thursday’s storage report.