Chesapeake Energy Corp files for Chapter 11

September 2020 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

September 2020 Issue

Almost a year after warning it was in danger of violating its credit agreements, shale gas producer Chesapeake Energy Corporation has announced that it has voluntarily filed for Chapter 11 protection in order to facilitate a comprehensive balance sheet restructuring.

To this end, the company has entered into a restructuring support agreement (RSA) with 100 percent of the lenders under its revolving credit facility – pursuant to which will be a Chapter 11 plan of reorganisation to eliminate approximately $7bn of debt.

During the course of the Chapter 11 proceedings and the implementation of the RSA, Chesapeake will operate in the ordinary course of business.

As part of the RSA, Chesapeake has secured $925m in debtor-in-possession (DIP) financing from certain lenders under Chesapeake’s revolving credit facility, which will be available upon court approval. The financing package will provide Chesapeake with the capital necessary to fund its operations during the court-supervised Chapter 11 reorganisation proceedings.

Chesapeake has also filed customary motions with the court seeking a variety of ‘first-day’ relief, including authority to pay owner royalties, employee wages and benefits, and certain vendors and suppliers for goods and services provided.

“We are fundamentally resetting Chesapeake’s capital structure and business to address our legacy financial weaknesses and capitalise on our substantial operational strengths,” said Doug Lawler, president and chief executive of Chesapeake. “By eliminating approximately $7bn of debt and addressing the legacy contractual obligations that have hindered our performance, we are positioning Chesapeake to capitalise on our diverse operating platform and proven track record of improving capital and operating efficiencies and technical excellence.”

Furthermore, Chesapeake and certain lenders under the company’s revolving credit facility have also agreed to the principal terms of a $2.5bn exit financing, consisting of a new $1.75bn revolving credit facility and a new $750m term loan. Additionally, Chesapeake has the support of its term loan lenders and secured note holders to backstop a $600m rights offering upon exit.

“In addition to securing financing to fund our ongoing operations and facilitate our exit from this process, we are pleased to have the support of our term loan lenders and secured note holders to backstop a $600 million rights offering, demonstrating their confidence in Chesapeake’s operating platform and future,” added Mr Lawler. “We look forward to working productively with our suppliers, business partners and all stakeholders throughout this process.”

Serving as Chesapeake’s legal counsel is Kirkland & Ellis LLP, while Alvarez & Marsal is serving as restructuring adviser. Additionally, Rothschild & Co and Intrepid Financial Partners are serving as financial advisers, and Reevemark is serving as communications adviser. Serving as legal counsel to Chesapeake’s board of directors is Wachtell, Lipton, Rosen & Katz.

Founded in 1989 and headquartered in Oklahoma City, Chesapeake’s operations are focused on discovering and developing its large and geographically diverse resource base of unconventional oil and natural gas assets onshore in the US, from South Texas to Pennsylvania.

Mr Lawler concluded: “With our demonstrated strengths, and the benefit of an appropriately sized capital structure, Chesapeake will be uniquely positioned to emerge from the Chapter 11 process as a stronger and more competitive enterprise.”

Fraser Tennant