8-KMaterial AgreementsFinancial EventsExhibits & Filings

EXPAND ENERGY Corp 8-K Report, Material Agreement (Dec 23, 2015)

Filed December 23, 2015For Securities:EXEEXEELEXEEWEXEEZ

Summary

Chesapeake Energy Corporation (Chesapeake) filed an 8-K on December 23, 2015, detailing the settlement of its private exchange offers for its outstanding notes. The company accepted tenders for approximately $3.9 billion aggregate principal amount of existing notes in exchange for approximately $2.4 billion in newly issued 8.00% Senior Secured Second Lien Notes due 2022. This exchange effectively reduced Chesapeake's overall debt principal by roughly $1.5 billion, which is a significant move towards deleveraging. The Second Lien Notes are secured by second-priority liens on the company's oil and natural gas properties and other personal property, subordinate to the existing Credit Facility. The report also outlines the terms of the Indenture, including interest payments, maturity date, optional redemption provisions, and covenants designed to protect the Second Lien Noteholders. The company also entered into an Intercreditor Agreement and a Collateral Trust Agreement to govern the rights and relationships among the different classes of secured creditors.

Key Highlights

  • 1Chesapeake successfully completed an exchange offer, issuing $2.4 billion of 8.00% Senior Secured Second Lien Notes due 2022 and receiving approximately $3.9 billion of existing notes, resulting in a $1.5 billion reduction in debt principal.
  • 2The new Second Lien Notes mature on December 15, 2022, and bear an annual interest rate of 8.00%, payable semiannually.
  • 3The Second Lien Notes are secured by second-priority liens on the company's oil and natural gas properties and other personal property, subordinate to the Credit Facility.
  • 4The Indenture includes various covenants limiting the company's ability to create new liens, engage in sale-leaseback transactions, sell collateral, or merge or sell substantially all assets.
  • 5Optional redemption rights are detailed, including the ability to redeem up to 35% of the principal using equity proceeds at a premium prior to December 15, 2018, and general redemption options at various price points after that date.
  • 6Mandatory principal payments may be required if the notes are deemed 'applicable high yield discount obligations' (AHYDOs) to avoid adverse tax consequences.
  • 7The filing establishes an Intercreditor Agreement and a Collateral Trust Agreement to define the priority and administration of collateral among different debt holders.

Frequently Asked Questions

This 8-K filing announces the settlement of Chesapeake Energy Corporation's private exchange offers for its outstanding notes. The company exchanged approximately $3.9 billion of existing debt for $2.4 billion of new 8.00% Senior Secured Second Lien Notes due 2022, effectively reducing its debt principal by $1.5 billion.

The new Second Lien Notes have a principal amount of $2.4 billion, mature on December 15, 2022, and carry an 8.00% annual interest rate, payable semi-annually on June 15 and December 15. They are unsecured for general corporate purposes but are secured by second-priority liens on specific company assets.

The $1.5 billion reduction is a result of the exchange ratio. For every approximately $3.9 billion in existing notes surrendered, Chesapeake issued $2.4 billion in new Second Lien Notes. This means that for every dollar of existing debt exchanged, less than a dollar of new debt was issued, leading to a net decrease in the principal amount of debt outstanding.

'Second-priority liens' mean that while the Second Lien Notes are secured by specific assets (oil and gas properties, etc.), they are subordinate to any debt that has a first-priority lien on those same assets. In this case, the existing Credit Facility has priority, meaning its lenders would be paid first from the collateral in a liquidation scenario before the Second Lien Noteholders receive proceeds.