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Chesapeake stock spikes as borrowing base affirmed, redetermination delayed

Analystsand shareholders warmly greeted news that Chesapeake Energy Corp.'s borrowing base was reaffirmedat $4 billion and the next redetermination of its credit facility would bepostponed until June 2017

"It'sgood news across the board as its covenants eased and it still had a $4 billionborrowing base with no redetermination for over a year now," WunderlichSecurities Vice President for Equity Research Jason Wangler said. "Theability to raise more debt could be a big deal as it may allow Chesapeake toissue new debt and buy back a lot of its cheap existing debt, ultimatelylowering debt and interest expenses, which is its main goal.

"Iwould argue it's positive … and it looks like the market agrees."

Chesapeake'sstock rallied at open and continued to gain ground throughout the day. Thestock closed up nearly 20% at $4.50 per share.

Beforethe market opened on April 11, Chesapeake said that, following a recent reviewby its bank syndicate group, the company's senior secured revolving creditfacility borrowing base had been reaffirmed at $4 billion. In exchange, thecompany promised to pledge additional assets as collateral. The move avoidedwhat some analysts speculated could have been a potential devastatingredetermination review this spring.

"Aspart of the amendment, the next scheduled borrowing base redetermination reviewhas been postponed, and the lenders have agreed not to exercise their interimredetermination right, in each case until June 2017," Chesapeake said.

The agreement was also amended to include a collateral valuecoverage test that could limit Chesapeake's borrowing capacity if itscollateral coverage ratio falls below 1.25x, tested as of March 31, 2017.

The amendment includes temporary covenant relief as thecredit facility's senior secured leverage ratio was suspended until September2017, reverting to 3.5x through December 2017 and decreasing to 3.0xthereafter, according to the release.

The credit facility's interest coverage ratio covenant wascut to 0.65x through March 2017 from 1.1x previously. This will increase to0.7x through June 2017 and revert to 1.2x in September 2017 and to 1.25xthereafter.

Under the amended agreement, Chesapeake will maintain a $500million minimum liquidity amount at all times during the suspension ofmaintenance covenants, which would increase to $750 million if the collateralcoverage ratio falls below 1.1x, tested as of Dec. 31.

Oppenheimer & Co. Inc. analyst Fadel Gheit agreed that themove was a positive one for Chesapeake.

"It buys the company more time to strengthen itsfinancial position by restructuring and reducing its debt using proceeds fromasset sales," he said.