What is the main impact of the third amendment on Chesapeake Energy's credit facility?

The primary impact is the reaffirmation of the $4.0 billion Borrowing Base and, crucially, the postponement of the next scheduled redetermination of PV-9 until June 2017. This provides stability and predictability for the company's available borrowing capacity for an extended period, suspending the risk of an immediate reduction in borrowing limits.

How does this amendment affect Chesapeake Energy's financial covenants?

The amendment suspends several key financial covenants, such as the first lien secured leverage ratio, net debt to capitalization ratio, and interest coverage ratio, until September 30, 2017. In their place, temporary covenants are introduced, including a minimum liquidity requirement of $500.0 million and specific interim interest coverage ratios. This offers Chesapeake more flexibility in managing its financial obligations during the suspension period.

What collateral is being pledged under the amended agreement?

Chesapeake Energy is granting liens and security interests on substantially all of its assets. This includes mortgages on 90% of its proved oil and gas properties, all hedge contracts, personal property, and control agreements for its deposit and securities accounts. This significantly strengthens the collateral position for the lenders.

Are there any new financial tests or obligations introduced by this amendment?

Yes, the amendment introduces collateral value coverage tests. One is to be tested as of December 31, 2016, and another as of March 31, 2017. These tests compare the company's collateral value to the borrowing base, and failure to meet these ratios could trigger an increase in the minimum liquidity requirement or automatic reductions in borrowing ability, respectively.

EXE 8-K: Material Agreements & Financial Events

Summary

Chesapeake Energy Corporation (CHK) filed an 8-K on April 11, 2016, detailing a significant third amendment to its senior revolving credit agreement, effective April 8, 2016. The core of this amendment involves a reaffirmation of the Borrowing Base at $4.0 billion, but critically postpones the next scheduled semi-annual redetermination of PV-9 from October 2016 to June 2017. This extension, agreed upon by consenting lenders, provides a crucial period of stability regarding the company's borrowing capacity. Furthermore, the amendment introduces several key modifications to financial covenants and collateral requirements. It suspends certain existing covenants, including leverage and interest coverage ratios, until September 30, 2017, replacing them with a temporary, less stringent interest coverage ratio and a minimum liquidity requirement. The company is also required to implement new collateral value coverage tests and grant security interests on substantially all of its assets, including mortgages on a significant portion of its proved oil and gas properties. These changes collectively aim to provide CHK with operational flexibility and financial breathing room amidst a challenging market environment, while also enhancing lender protection through increased collateralization.

Key Highlights

1Chesapeake Energy entered into a third amendment to its senior revolving credit agreement on April 8, 2016.
2The Borrowing Base was reaffirmed at $4.0 billion.
3The next scheduled semi-annual redetermination of PV-9 has been postponed from October 30, 2016, to June 15, 2017.
4Certain financial covenants (leverage, interest coverage ratios) are suspended until September 30, 2017.
5New, less stringent interim financial covenants include an interest coverage ratio and a minimum liquidity requirement of $500.0 million.
6The company will be subject to collateral value coverage tests in late 2016 and early 2017.
7Substantially all of the company's assets, including 90% of proved oil and gas properties, are being granted as collateral, along with mortgages and control agreements.

EXPAND ENERGY Corp 8-K Report, Material Agreement (Apr 11, 2016)

Summary

Key Highlights

Frequently Asked Questions