Chesapeake wins breathing space with $3 billion loan
CHESAPEAKE Energy said it had received a $3 billion loan from Goldman Sachs and Jeffries Group that will give it breathing room to sell assets and close a funding gap this year.
The company, which has been embroiled in a corporate governance crisis that prompted its move to replace co-founder Aubrey Mc- Clendon as chairman, said the new unsecured loan will be used to repay money borrowed under its existing $4 billion revolving credit facility.
“This short-term loan from Goldman and Jefferies provides us with significant additional financial flexibility as we execute our asset sales during the remainder of 2012,” McClendon, who will remain as chief executive offi- cer, said in a statement.
The company, the nation’s second largest natural gas producer, said it plans to sell $9.0 billion to $11.5 billion in assets this year.
It expects to close the sales of its Permian Basin property in West Texas and Mississippi Lime joint venture in the third quarter, and said it had “strong interest for prospective buyers” for those two assets. With the new loan, Chesapeake will have a better position in bargaining with buyers who may have sought to pressure the company into accepting low bids, according to a person familiar with the situation.
The new debt facility, which matures in December 2017, was set at an interest rate at about 8.5 percent, and can be repaid at any time this year without penalty at par value, the company said.
“I would imagine that this is a relatively expensive source of financing for Chesapeake to feel compelled to pursue,” said Bonnie Baha, portfolio manager at DoubleLine, which oversees $34 billion in assets under management.
Still, since Chesapeake was taking the unusual step of getting a loan to pay off an existing revolving debt facility and not securing it with assets, the company did appear to be making a sound deal.
“However, given Chesapeake’s current situation, it’s likely to surmise that someone is going to be left holding the bag on this one,” Baha said.
Wall Street has long bene- fited from Chesapeake’s financing moves. Prior to the new deal, the Oklahoma Citybased company had paid nearly $1 billion in investment banking fees since 2000, with Jefferies taking in $118 million of that money.
Earlier on Friday, Chesapeake said it could delay asset sales in order to preserve cash flow needed to comply with requirements of its existing $4 billion corporate credit facility Chesapeake faces a funding gap that Fitch Ratings estimated at $10 billion this year.
To fill the void and trim its debt, the company aims to raise as much as $14 billion through the sale of assets and other