Morning Commentary: Chesapeake preferreds, bonds mixed after dividend suspended to buy back debt

By Rebecca Melvin

New York, Jan. 22 – Chesapeake Energy Corp.’s convertibles were mixed early Friday after the Oklahoma City-based natural gas producer said it has suspended dividend payments on each series of its convertible preferred stock to save money to buy back debt.

Chesapeake will use the savings of about $170 million per year “to purchase debt at significant discounts in the near term,” according to a company news release.

The dividend suspension is effective immediately and does not constitute an event of default under the company’s revolving credit facility or bond indenture.

Chesapeake’s two series of 5.75% convertible preferreds were quoted lower at 0.5 point to 2.5 points over parity from more than 2 points to 4 points over parity previously, a New York-based trader said.

The preferreds were only trading in very small amounts and seen printing at $185, $165 and $180, a New York-based trader said.

The Chesapeake 2.5% convertible bonds were quoted higher and closed Thursday at 52.5 bid, 53 offered, from about 50 previously. They weren’t seen to have traded on Friday.

“I would say that the news was received as a positive but there was less of a reaction because it was kind of expected,” the trader said.

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