Oil and gas producer Chesapeake Energy Corp. (NYSE: CHK) announced Monday morning that it has amended the terms of its $4 billion revolving credit facility. The key part of the deal with the company’s existing lender is the postponement of its next asset redetermination until June of 2017.
Other provisions of the deal include a reaffirmation of Chesapeake’s $4 billion borrowing base, senior secured leverage ratio covenant relief until September 2017 and interest coverage ratio reduced to 0.65 times through March 2017. In exchange, Chesapeake agreed to pledge additional assets as collateral.
Postponing the company’s next scheduled borrowing base redetermination review until June 2017 gives Chesapeake an opportunity to get some help from the market. If prices for oil and gas rise as expected, Chesapeake’s asset value will rise, making it less expensive to borrow funds and easier for Chesapeake can meet its collateral value coverage test due next March. The company needs to maintain a collateral coverage ratio of 1.25 times in order to retain its full borrowing capacity.
Here are additional details from Chesapeake’s announcement:
The amendment provides temporary covenant relief, with the facility’s senior secured leverage ratio suspended until September 2017, then reverting to 3.5x through December 2017 and decreasing to 3.0x thereafter. In addition, the amendment reduces the interest coverage ratio to 0.65x from 1.1x through March 2017, after which it will increase to 0.70x through June 2017, then reverting to 1.2x in September 2017 and to 1.25x thereafter.
Chesapeake has agreed to maintain minimum liquidity of $500 million at all times, with that minimum rising to $750 million if the collateral coverage ratio falls below 1.1 times at the end of December 2016. The company may also incur up to $2.5 billion in additional first lien indebtedness on a pari passu basis, provided that existing lenders receive payment priority.
Chesapeake’s shares traded up nearly 13% Monday morning, at $4.24 in a 52-week range of $1.50 to $16.98.
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