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Shale pioneer Chesapeake Energy files for bankruptcy

Stock MarketsJun 28, 2020 08:50PM ET
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© Reuters. To match Special Report CHESAPEAKE-MCCLENDON/LOANS

By David French and Rama Venkat

NEW YORK (Reuters) - Chesapeake Energy Corp (N:CHK) filed for Chapter 11 on Sunday, becoming the largest U.S. oil and gas producer to seek bankruptcy protection in recent years as it bowed to heavy debts and the impact of the coronavirus outbreak on energy markets.

The filing marks an end of an era for the Oklahoma City-based shale pioneer, and comes after months of negotiations with creditors. Reuters first reported in March the company had retained debt advisers.

Chesapeake was co-founded by Aubrey McClendon, an early and high profile advocate of shale drilling who died in 2016 in a fiery one-car crash in Oklahoma while facing a federal probe into bid rigging. Over more than two decades, McClendon built Chesapeake from a small wildcatter to a top U.S. producer of natural gas. It remains the sixth-largest producer by volume.

Current CEO Doug Lawler, who inherited a company saddled with about $13 billion in debt in 2013, managed to chip at the debt pile with spending cuts and asset sales, but this year's historic oil price rout left Chesapeake without the ability to refinance that debt.

"Despite having removed over $20 billion of leverage and financial commitments, we believe this restructuring is necessary for the long-term success and value creation of the business," Lawler said in a statement announcing the filing.

Lawler last year spent $4 billion on an ill-timed push to reduce Chesapeake's reliance on natural gas. The purchase sent its shares lower and this year the value of Chesapeake's oil and gas holdings fell by $700 million this quarter. The company last month warned it may not be able to continue operations.

Chesapeake plans to eliminate approximately $7 billion of its debt, the statement said. A separate court filing indicated that Chesapeake has more than $10 billion in liabilities and assets, respectively.

Chesapeake's outlook plunged this year as the coronavirus outbreak and a Saudi-Russia price war sharply cut energy prices and drove its first-quarter losses to more than $8 billion. On Friday, its stock traded at $11.85, down 93% since the start of the year, leaving it with a market value of $116 million.

The company has entered into a restructuring support agreement, which has the backing of lenders to its main revolving credit facility - some of which are providing $925 million of debtor-in-possession (DIP) financing to help fund operations during the bankruptcy proceedings.

The agreement also has backing from portions of other creditors, including those behind 87% of its term loan, and holders of 60% and 27%, respectively, of its senior secured second lien notes due 2025, and senior unsecured notes.

While the statement does not name Chesapeake's creditors, investment firm Franklin Resources (NYSE:BEN) is among the most significant. On June 15, Reuters reported that Chesapeake's impending restructuring would turn over control of the company to creditors including Franklin.

Chesapeake also has agreed the principal terms for a $2.5 billion exit financing, while some of its lenders and secured note holders have agreed to backstop a $600 million offering of new shares, to take place upon exiting the Chapter 11 process, the statement added.

Chesapeake's filing in U.S. Bankruptcy Court for the Southern District of Texas makes it the largest bankruptcy of an U.S. oil and gas producer since at least 2015, when law firm Haynes & Boone began publishing data on restructurings.

Chesapeake's advisers are investment banks Rothschild & Co and Intrepid Partners, law firm Kirkland & Ellis LLP, and turnaround specialists Alvarez & Marsal.

Shale pioneer Chesapeake Energy files for bankruptcy
 

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Comments (21)
Hunt Richardson
Hunt Richardson Jun 29, 2020 8:09AM ET
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who in the right mind would invest in new shares of a bankrupt company in an industry that is going down
Francesco Lucchesi
Francesco Lucchesi Jun 29, 2020 7:10AM ET
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the next one to go Occidental? that would be lovely
Francesco Lucchesi
Francesco Lucchesi Jun 29, 2020 2:46AM ET
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good riddance, shale gas is evil, hopefully the entire industry disappears. Putin "s job finally paying off
Daniel Hall
Daniel Hall Jun 29, 2020 2:46AM ET
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I would say it is ignorant for a totally different reason... Chesapeake isn't even "disappearing" the bankruptcy plan started in the article indicates their operations will continue under new management after restructuring
Francesco Lucchesi
Francesco Lucchesi Jun 29, 2020 2:46AM ET
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Daniel Hall I know but current shareholders will be diluted to oblivion. the company will never be what it was. there is basically no future for shale. and when finally trump gets voted out it will be the end of this disgrace
Brad Rouse
Brad Rouse Jun 29, 2020 2:46AM ET
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Francesco Lucchesi Stefon is right. Blurting ignorance with confidence doesnt make it any less ignorant. Your personal situation as it relates to US shale couldnt be any less relevant in an intelligent conversation.
Itsik Ovadia
Itsik Ovadia Jun 29, 2020 2:46AM ET
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thanks
Francesco Lucchesi
Francesco Lucchesi Jun 29, 2020 2:46AM ET
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Brad Rouse whatever, you probably lost a fair amount in this. I am happy with being ignorant
Stacy Starner
Stacy Starner Jun 28, 2020 10:29PM ET
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Be another hertz. People will try to flip it thinking it will go up. Take it to court may get approve to sell more shares 🙄
I need A job now
I need A job now Jun 28, 2020 8:19PM ET
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stock has no value, maybe 0.10. Go to Vegas better chances to struck the jackpot.
Sam Donald
Sam Donald Jun 28, 2020 8:07PM ET
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I'm in for a long call
Hung Nguyen
Hung Nguyen Jun 28, 2020 8:07PM ET
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Very long
Robert DZ the patterns
Robert DZ the patterns Jun 28, 2020 8:00PM ET
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Their stock will go up by 250% at least, just like hertz stock
Nghia Nguyen
Nghia Nguyen Jun 28, 2020 7:37PM ET
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This stock go up or down
Muhamed Jaffir
Muhamed Jaffir Jun 28, 2020 7:24PM ET
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Welcome to useless share land, you have much fine company in bag holders united!
Michael Jones
Michael Jones Jun 28, 2020 7:00PM ET
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gap up 10% in the morning
Large Father
Large Father Jun 28, 2020 6:49PM ET
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Poor Cheese-a-cake energy...we knew thee well
Fufi Active Trader
Fufi Jun 28, 2020 6:41PM ET
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Jerome Powell, the FED, is going to buy all Debt....
Joanna Yin
Joanna Yin Jun 28, 2020 6:40PM ET
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another Hertz?
Large Father
Large Father Jun 28, 2020 6:40PM ET
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Only really smart American investors buy bankrupt company's shares LOL
paul guzman
paul guzman Jun 28, 2020 6:38PM ET
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esta semana el oso va coger el toro por los cachos
Easy Trade
Easy Trade Jun 28, 2020 5:38PM ET
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Wow, offering new stock, getting 900+ million to continue operations, bankruptcy is super bullish. Why don't companies go bankrupt more often? What a great way to raise money, when banks will give you none because you are too irresponsible, lets turn to an over-enthusiastic market! Imagine what happens if gas futures continues to be priced at 1.50, or lower? Chap 11 will turn into a different chapter, whatever gains the stock has will flash crash, and CHK will get a tombstone. Who would greatly benefit from this? OPEC. And who do we think is shorting gas futures now? Probably OPEC countries through investment banks.
Show previous replies (8)
Large Father
Large Father Jun 28, 2020 5:38PM ET
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Easy Trade  no worries, I can tell you're an educated investor, my comment was more a reflection of the insanity re: the average American investor buying up shares in bankrupt companies like Hertz and JCPenny....but I'm 5 scotches deep for the night so what do I know
Easy Trade
Easy Trade Jun 28, 2020 5:38PM ET
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Large Father  Cheers, mate.
Erski Gumby
SB20 Jun 28, 2020 5:38PM ET
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Lots of traders made money on Hertz buying from the lows and exiting when they hit 6. I hope you were able to take advantage too.
Easy Trade
Easy Trade Jun 28, 2020 5:38PM ET
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Erski Gumby  Definitely not my kind of trade. Have a day job, that I am ignoring right now sadly. Too risky for my blood, in an industry I do not know. Maybe a small position? But man, I would rather buy gas futures which are trash right now than HTZ. At least gas has a real chance of recovery.
Large Father
Large Father Jun 28, 2020 5:38PM ET
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Erski Gumby  hell no...I don't like to put my money in harm's way. you might be right once or twice betting on bankrupt companies, but long term it's not a good strategy.
George Vincent
George Vincent Jun 28, 2020 5:12PM ET
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Going to be ugly tomorrow in the markets. Oo boy
Large Father
Large Father Jun 28, 2020 5:12PM ET
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what do you mean? So many bankrupt companies for American investors to invest in LOL
Frederico Oliveira
Frederico Oliveira Jun 28, 2020 4:59PM ET
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I wish all good fortune in the wars to come
Adel Zahedi
Adel Zahedi Jun 28, 2020 4:54PM ET
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buy DRIP , dump XOP
Plopseven Schwartz
Plopseven Schwartz Jun 28, 2020 4:54PM ET
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Price target $7-8 minimum 7/17
Roman Cerny
Roman Cerny Jun 28, 2020 4:49PM ET
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Others will follow...
Rox Ven
Rox Ven Jun 28, 2020 4:35PM ET
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So it begins. Age of insolvency. FED can fix liquidity but can't fix insolvency, unless America is going to nationalise all zombie companies. Second market crash is in the making. Debt is eating from inside.
Robert Cox
Robert Cox Jun 28, 2020 4:35PM ET
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That is how it should work. How it will work is that the FED will start buying company debt to prop them up for the short-term until they get crushed and can't do so anymore.
Ştefan Romaniuc
Ştefan Romaniuc Jun 28, 2020 4:33PM ET
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What you think?Will Chesapeake stock grow again?
Don Getty
Don Getty Jun 28, 2020 4:33PM ET
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generally it takes a couple year for a stock to grow post bankruptcy but with oil its tougher as there's so much more market manipulation!
Kaveh Sun
Kaveh Sun Jun 28, 2020 4:33PM ET
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Bk wipes out all stockholders. Share holders own toilet paper now. Down the road, if they sell shares again, it is like a brand new company.
Easy Trade
Easy Trade Jun 28, 2020 4:33PM ET
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Kaveh Sun  Isn't this only true if they default on the new loan? So for now, the shares are safe until they fail the last and final time?
 
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