Morning Commentary: Chesapeake Energy’s $1.1 billion new issue takes up the bulk of trading

By Stephanie N. Rotondo

Seattle, Sept. 30 – Convertible bond market players were focusing on Chesapeake Energy Corp.’s newly priced $1.1 billion issue of 5.5% convertible senior notes due 2026, sources reported Friday.

The deal came late Thursday, with an initial conversion premium of 40%. Initial price talk had the coupon in the mid-6% area, according to a market source, with a conversion premium of 25%. Talk was later reduced to 5.5% to 6%.

The deal was also increased from the originally announced $850 million.

Goldman Sachs & Co. led the deal. Deutsche Bank Securities Inc. also participated.

In early Friday trading, a trader placed the new issue at par versus $6.12, which was Thursday’s closing share price.

The stock (NYSE: CHK) was also faring better, however, rising 17 cents, or 2.72%, to $6.29 by mid-morning.

The notes convert at a price of $8.57, a 40% premium to the closing level on Thursday.

The deal has net share settlement and contingent conversion.

Chesapeake may call the notes after three years subject to a 130% stock price hurdle.

Proceeds will be used for general corporate purposes, which may include debt repurchases and the repayment of a credit facility and senior notes with near-term maturities.

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