Chesapeake Energy secures $1B loan, plans to buy back senior notes

Chesapeake Energy Corp. has secured a $1 billion loan and plans to use the money to buy back debt with higher interest rates.

The five-year secured loan uses some of the company’s unproduced oil and natural gas as collateral.

“Chesapeake expects this financing and the tender offers to improve its financial flexibility as it will allow for the retirement of existing debt with upcoming maturities,” the company said in a statement.

In two separate announcements, Chesapeake said it will buy back $500 million of senior notes due between 2017 and 2023, and $500 million in convertible senior notes due 2037 and 2038.

The offers expire Sept. 12 and are available to holders of the company’s 6.25 percent Euro-denominated senior notes due 2017, 6.5 percent senior notes due 2017, 7.25 percent senior notes due 2018, floating rate senior notes due 2019, 6.625 percent senior notes due 2020, 6.875 percent senior notes due 2020, 6.125 percent senior notes due 2021, 5.375 percent senior notes due 2021, 4.875 percent senior notes due 2022, 5.75 percent senior notes due 2023, 2.5 percent contingent convertible senior notes due 2037 and 2.25 percent contingent convertible senior notes due 2038.

Together, the notes have an aggregate principle of nearly $6.2 billion. Chesapeake’s total debt as of June 30 was about $8.7 billion.

Amid low oil prices, Chesapeake executives have focused on reducing debt. Over the past 12 months, the company has cut its debt by about $3 billion, including a $1 billion reduction since the end of 2015.

“Financial discipline

across our entire business remains the priority at Chesapeake,” Chief Financial Officer Domenic J. Dell’Osso said on a call with analysts earlier this month. “It’s not only about reducing our operating expenses or costs savings, although we’ve done very well in those areas. Our main focus is reduction of total debt and the improvement in our liquidity, specifically debt maturing in the next six to 24 months.”

Moody’s Investors Service ratings agency on Monday assigned the new $1 billion loan a Caa1 rating, which is seven notches below investment grade. Moody’s also downgraded the company’s existing second lien secured notes one notch to Caa2 from Caa1 and affirmed its Caa2 corporate family rating and its Caa4 senior unsecured notes rating.

Moody’s raised Chesapeake’s speculative grade liquidity rating one notch to SGL-3 and raised the outlook to positive from negative.

“The term loan issuance enables Chesapeake to refinance a meaningful portion of its 2017 and 2018 maturities, improving its liquidity position,” Pete Speer, Moody’s senior vice president, said in a statement. “The company has concluded meaningful asset sales to date and has prospects for more asset sales that could lead to additional debt reduction and enhanced capacity to fund sustaining levels of capital expenditures.”

Chesapeake shares jumped 48 cents, or 9.6 percent, to $5.50 a share Monday.