Summary
Chesapeake Energy Corporation (the Company) has filed an 8-K detailing significant debt refinancing activities concluded in December 2019. The primary events include the successful completion of its Second Lien Notes Exchange Offer, issuing approximately $2.2 billion of new 11.5% Senior Secured Second Lien Notes due 2025 in exchange for approximately $3.2 billion of its existing senior notes. This effectively reduced the company's principal debt outstanding by about $1 billion. Concurrently, the Company secured a new $1.5 billion Term Loan Facility, comprised of Class A Term Loans, which was utilized to fund tender offers for and subsequently terminate the Brazos Valley Longhorn (BVL) Credit Facility and repay outstanding amounts. These transactions represent a strategic move by Chesapeake Energy to restructure its debt, improve its balance sheet by reducing principal debt, and potentially lower its overall interest expense, despite the higher coupon on the new Second Lien Notes compared to the aggregate value of the exchanged notes. The new debt instruments are secured by the Company's assets, with different priority levels established through intercreditor agreements, and carry various covenants and events of default that investors should carefully review.
Key Highlights
- 1Chesapeake Energy completed an exchange offer, issuing $2.2 billion of new 11.5% Senior Secured Second Lien Notes due 2025 for approximately $3.2 billion of existing senior notes, reducing principal debt by roughly $1 billion.
- 2A new $1.5 billion Term Loan Facility (Class A Term Loans) was established and funded, primarily used to refinance the Brazos Valley Longhorn (BVL) debt.
- 3The BVL Credit Facility was terminated as a direct result of the new Term Loan financing.
- 4The Second Lien Notes are secured by second-priority liens on the Company's assets and mature on January 1, 2025, with semiannual interest payments starting July 1, 2020.
- 5The Class A Term Loans mature on June 23, 2024, bear interest at LIBOR plus 8.00% (with a floor) or ABR plus 7.00% (with a floor), and were funded at 98% of par.
- 6Both the Second Lien Notes and Term Loans have change of control provisions requiring offers to prepay at 101% of principal plus accrued interest.
- 7Intercreditor agreements are in place to govern the priority of liens between the Credit Facility, the new Term Loan, and the Second Lien Notes on the Company's collateral.