S&P Going Negative on Chesapeake (CHK, CHKM)

Chesapeake Energy Corporation (NYSE: CHK) is taking a credit hit from Standard & Poor’s but this is not an equity downgrade.  The company and its affiliate units have been revised to Negative even though its BB+ corporate credit rating is being affirmed.  If this does result in a formal credit rating downgrade in the months ahead, then Chesapeake is moving away from investment grade rather than moving closer to investment grade.

Depressed natural gas prices making a negative impact on operating cash flow…. with a likely increase in the near-term free cash flow deficit with some reduction in capital investment.

Two affiliates we also affirmed and revised to Negative from Stable: Chesapeake Oilfield Operating LLC and Chesapeake Midstream Partners L.P. (NYSE: CHKM).

The crux: “Unless Chesapeake can fund its cash requirements through means that do not entail an increase in financial leverage on an adjusted basis, we could lower the ratings.”

This downgrade may take months to play out, if it does come.  The common shares of Chesapeake are down only 0.2% at $22.27 against a 52-week range of $20.41 to $35.95.

JON C. OGG