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.