Chesapeake Energy announces exchange offer for 8 1/8% notes

New York, Dec. 1 - - Chesapeake Energy Corp. (Ba3/BB-) said disclosed details of its previously announced exchange offer in which it will issue new debt for up to $500 million principal amount of its outstanding 8 1/8% senior notes due 2011.

The company said that holders will have the option to receive either new 7¾% senior notes due 2015 or new 6 7/8% senior notes due 2016 in exchange for the existing 8 1/8% notes.

Specifically, Chesapeake is offering $1,033.23 principal amount of 7¾% notes or $1,107.68 principal amount of 6 7/8% notes for each $1,000 principal amount of 8 1/8% notes tendered by holders and accepted by the company for purchase.

Accrued and unpaid interest due on all 8 1/8% notes accepted by the company will be settled by adjusting the principal amount of 7¾% or 6 7/8% notes to be issued.

Chesapeake said that it expected to formally commence the exchanger offer on Dec. 1. It set 5 p.m. ET on Dec. 12 as the early tender deadline and said the offer would expire at midnight ET on Dec. 29, with both deadlines subject to possible extension.

Chesapeake said that in addition to its issuance of new notes in exchange for the existing notes and their accrued interest it will also make an early tender payment of $10 cash per $1,000 principal amount of the 8 1/8% notes validly tendered by the early tender deadline and accepted for purchase by the company.

Holders will not have to choose the same option for all the 2011 notes that they may tender. If more than $500 million in aggregate principal amount of the 2011 notes is validly tendered and not withdrawn, the company will accept tenders from holders on a pro rata basis.

The 7¾% notes to be issued in the offer will be issued as additional notes of the same series as Chesapeake's already outstanding 7¾% senior notes due 2015, which were originally issued on Dec. 20, 2002. Currently there is $236.7 million principal amount outstanding.

The 6 7/8% notes to be issued in the offer will be issued as additional notes of the same series as the company's already outstanding 6 7/8% senior notes due 2016, $200 million of which were which were issued on Nov. 26 and remain currently outstanding.

The exchange offer will be subject to certain customary conditions. It will not be subject to a minimum tender condition.

Banc of America Securities LLC (contact High Yield Special Products at 888 292-0070 or collect at 704 388-4813), Deutsche Bank Securities (contact High Yield Capital Markets by calling collect at 212 250-7466) and Lehman Brothers (800 438-3242 or collect at 212 528-7581) are joint lead dealer managers for the exchange. The information agent is D.F. King & Co. (800 431-9633 or collect at 212 269-5550).

Chesapeake is currently conducting a cash tender offer for all of its $110.669 million of 8½% notes, as well as a related solicitation of noteholder consents to proposed changes in the notes' indenture, both announced on Nov. 11.

The company said that the tender offer and consent solicitation would begin on Nov. 12. It set a now-expired consent deadline of 5 p.m. ET on Nov. 25 and said the exchange would expire at midnight ET on Dec. 10, subject to possible extension.

Chesapeake said that holders validly tendering their notes by the consent deadline would receive the total consideration of $1,063.37 per $1,000 principal amount of notes tendered and accepted for purchase, consisting of the purchase price of $1,033.37 and the consent payment of $30. Holders validly tendering their notes by the consent deadline would receive payment on the initial payment date.

Holders validly tendering their notes after the consent deadline but before the offer expires would receive the purchase price of $1,033.37 per $1,000 principal amount, but no consent payment. Payment for notes tendered after the consent deadline will be made promptly after the expiration deadline.

All holders whose notes are accepted for payment will also receive accrued and unpaid interest.

Chesapeake said that in connection with the offer, it was soliciting consents to certain proposed amendments that would eliminate substantially all of the restrictive covenants in the notes' indenture. It said that holders could not tender their notes without delivering consents or deliver consents without tendering their notes.

It said that the offer would be subject to the satisfaction of certain conditions, including the company's receipt of tenders of notes representing at least a majority of the outstanding principal amount, and the completion of a recently announced offering of $200 million senior notes which will be used to finance the offer.

On Nov. 25, Chesapeake said that it had received the consents necessary to adopt the proposed indenture amendments. It said acceptance of and payment for notes tendered by the consent deadline was expected to occur on Nov. 26, subject to satisfaction or waiver of certain conditions, and that upon payment for those notes, the amendments would become effective.

On Nov. 26, the company announced the completion of its previously announced private placement offering of $200 million of new 6 7/8% notes, and said that it had used a portion of the proceeds from this sale to purchase $104.845 million principal amount of the outstanding 8 ½% notes tendered for early payment. It said that following that purchase, the principal amount of $5.824 million of the 8 ½% notes remained outstanding and subject to the tender offer.

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