Chesapeake Energy enters five-year $3 billion revolving agreement

By Wendy Van Sickle

Columbus, ,Ohio, Sept. 12 – Chesapeake Energy Corp. entered into an amended and restated credit agreement providing for a five-year reserve-based revolving credit facility with an initial commitment of $3 billion, according to an 8-K filing with the Securities and Exchange Commission.

An accordion feature allows for the commitment to be increased to up to a total of $4 billion.

Borrowings bear interest at Libor plus a margin ranging from 150 basis points to 300 bps, depending on the percentage of the borrowing base being used and whether the company’s leverage ratio exceeds 4 times.

The commitment fee is 50 bps if less than half of the borrowing base is being used or 37.5 bps otherwise.

MUFG Union Bank, NA, JPMorgan Chase Bank, NA, Wells Fargo Securities, LLC, Bank of America Merrill Lynch, BMO Capital Markets Corp., Citicorp North America, Inc., Credit Agricole CIB, Mizuho Bank, Ltd., and Royal Bank of Canada are the joint lead arrangers and bookrunners.

JPMorgan Chase and Wells Fargo are the co-syndication agents.

MUFG is the administrative agent.

The credit agreement contains financial covenants that – after a transition period and the suspension of most of the financial covenants during the quarter in which the sale of properties under the purchase and sale agreement dated July 26 with an affiliate of Encino Acquisition Partners, LLC [the Utica sale] is consummated – requires the company to maintain

• A maximum leverage ratio of 5 times through the fiscal quarter ending Sept. 30, 2019, which decreases over time to 4 times for the fiscal quarter ending March 31, 2021 and each fiscal quarter after that;

• A maximum secured leverage ratio of 2.5 times until the later of the fiscal quarter ending March 31, 2021 or the fiscal quarter in when the company’s leverage ratio does not exceed 4 times; and

• A minimum fixed-charge coverage ratio of 2 times through the fiscal quarter ending Dec. 31, 2019; 2.25 times for the fiscal quarters ending March 31, 2020 and June 30, 2020; and 2.5 times for the fiscal quarter ending Sept. 30, 2020 and thereafter.

The credit agreement requires that any net cash proceeds from the Utica sale or from any borrowed money term debt incurred by the company or any guarantor be applied first to outstanding term loan debt under the company’s term loan agreement dated Aug. 23, 2016.

Chesapeake announced it would sell its Ohio Utica Shale operating area to Encino for $2 billion and, according to a company release, plans to use initial proceeds to redeem about $1.9 billion of debt.

Proceeds may also be used to finance the acquisition, development and exploration of oil and gas properties, to redeem, repay or prepay debt and for working capital and general corporate purposes.

Chesapeake Energy is an Oklahoma City-based producer of natural gas, oil and natural gas liquids.

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