Chesapeake Energy pays down debt in Q3, still has ‘a good way to go’

By Devika Patel

Knoxville, Tenn., Nov. 2 – Chesapeake Energy Corp. plans to continue to pay down its debt using asset sales and improving its balance sheet but the company still has “a good way to go,” management said.

The company paid down $557 million of secured debt in October and refinanced $850 million of secured debt.

“Improving our balance sheet is our top priority and indeed a journey,” president and chief executive officer Robert D. Lawler said on the company’s third quarter earnings conference call on Thursday.

“We’ve made great progress during the last few years reducing our total leverage through debt and obligation retirement, debt exchanges and refinancing.

“We intend to further reduce our leverage and improve our debt to EBITDA multiple through additional asset sales and accretive acquisitions in the near term,” Lawler said.

Lawler said that Chesapeake Energy still has a “good way to go” in paying down its debt, but he is “encouraged” by the progress the company has made.

“While we are on a journey of restoring our balance sheet and working to improve our competitiveness, I’m as encouraged today as I’ve ever been.

“While we have made great progress on the debt and made good progress on our profitability in each of our investments, I’ll say that we do have a good way to go.

“In October, we refinanced various secured and unsecured debt with $850 million of longer dated unsecured notes, resulting in a reduction of the principal amount of secured debt of $557 million,” executive vice president and chief financial officer Domenic J. Dell’Osso, Jr. said on the call.

“In total, we have reduced principal amount of our secured debt by approximately $1.2 billion this year to date and we’ll look to further reduce our secured debt balances as the opportunities arise,” Dell’Osso said.

The company plans to sell assets in order to keep paying down its debt.

“I can assure you that we work tirelessly to continue to reform our balance sheet and the way that that’s going to happen is through asset sales,” Dell’Osso said.

As of Sept. 30, Chesapeake’s principal debt balance was approximately $9.8 billion, compared to $10 billion as of Dec. 31, 2016.

The company’s total liquidity as of Sept. 30 was approximately $3 billion, which included cash on hand and borrowing capacity of approximately $3 billion under the company’s senior secured revolving credit facility.

As of Sept. 30, the company had $645 million of outstanding borrowings under the revolving credit facility and had used $97 million of the revolving credit facility for letters of credit.

On Sept. 27, Chesapeake Energy priced an upsized $850 million of senior notes (Caa2/CCC) in two tranches in a quick-to-market trade. The deal settled on Oct. 12.

The deal, the overall size of which was increased from $750 million, came in two add-on tranches.

The company priced an upsized $300 million add-on to its 8% notes due Jan. 15, 2025 at 101.25 to yield 7.768%. The tranche size was increased from $250 million. The reoffer price came on top of price talk.

Chesapeake Energy also priced an upsized $550 million add-on to its 8% notes due June 15, 2027 at 99.75 to yield 8.035%. The tranche size was increased from $500 million. The reoffer price came on top of price talk.

Morgan Stanley & Co. LLC, Wells Fargo Securities LLC, Deutsche Bank Securities Inc. and Citigroup Global Markets Inc. were the joint bookrunners.

Chesapeake used the proceeds to finance tender offers five series of outstanding notes.

Chesapeake Energy is an Oklahoma City-based oil and gas producer.

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