Moody's rates Chesapeake notes

Moody's Investors Service said it assigned a Ba3 rating to Chesapeake Energy's pending $300 million of senior unsecured notes due 2016, moved the outlook to positive from stable, and confirmed Chesapeake's existing ratings.

Moody's did not rate a new $500 million secured bank revolver maturing 2008; previous bank ratings are withdrawn.

Moody's said the positive outlook reflects the odds that in 12 to 24 months, a combination of preferred stock conversion to common, flush up-cycle cash flow, and increased reserve scale and diversification would push leverage on proven developed reserves into materially stronger territory. However, Moody's will also track Chesapeake's: stock buyback activity; significantly rising leverage full-cycle costs, driven mostly by finding and development costs; degree to which full-cycle costs appear covered by expected prices; and organic production trends.

Note proceeds will fund most of Chesapeake's $425 million cash acquisition of Greystone Petroleum LLC with the balance funded by cash on hand and bank debt.

With a positive rating outlook, Moody's confirmed the Ba3 ratings for the $209.8 million 8.375% senior unsecured notes due 2008, $245 million 8.125% senior unsecured notes due 2011, $110.7 million 8.5% senior unsecured notes due 2012, $300 million 9.0% senior unsecured notes due 2012, $363.8 million 7.5% senior unsecured notes due 2013, $300 million 7.75% senior unsecured notes due 2015, and $670 million 6.875% senior unsecured notes due 2016.

Moody's also confirmed the B3 rating for the $230 million 6.0% convertible preferred stock and $150 million 6.75% convertible preferred stock, as well as the Ba3 senior implied rating.

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