Eventhough it has struggled with its debt situation for a half-decade, said it amassedenough cash on hand to pay bondholders through the end of 2018.
Chesapeakeannounced Oct. 5 the closings of a $1.25 billion private placement of unsecuredconvertible senior notes and an agreement to exchange about 110.3 millionshares of its common stock for about $1.2 billion in liquidation value ofconvertible preferred stocks.
CEODoug Lawler said the moves"substantially improved" the company's capital structure by addingliquidity. Chesapeake, Lawler said, is now in a position where debtholders areassured payment for the next two years.
"Withthe cash proceeds from the convertible note offering, we have taken measures toprovide excess liquidity to address the remaining maturities of our debtthrough 2018, before any incremental proceeds from the potential asset salesthat we are currently working," he said. "These transactionsrepresent major steps toward reaching our financial goals of [$2 billion to $3billion] of debt reduction and growing production within free cash flow."
Themoves were sufficient for Wunderlich Securities to reiterate its "buy"rating for the company. Wunderlich Senior Vice President of Equity ResearchJason Wangler told S&P Global Market Intelligence that Chesapeake is takingthe right steps and more debt-cutting moves should be forthcoming.
"Ithink [Chesapeake] has been able to improve the balance sheet based on thepush-out of maturities of debt coming due, lower preferred stock and othermoves," he said. "Mostly these have been done using equity, butfollowing the upcoming/expected asset sales, look for the company to actuallyreduce their debt."
Offeringadded flexibility, the senior notes placement is coupled with a provisionalcall feature that will give Chesapeake an opportunity to convert the debt toequity in three years if the company's stock trades above 130% of theconversion price for a specified period.
Chesapeake'sstock was down 12 cents, or 1.62%, to $6.68 per share in afternoon trading Oct.6 on the New York Stock Exchange.