S&P rates Chesapeake loan, notes B-

S&P said it assigned B- ratings to Chesapeake Energy Corp.’s $1.5 billion first-lien last out term loan and $1.5 billion of second-lien notes. Both have a 1 recovery rating.

Proceeds from the loan will be used for a tender for cash for all 6 7/8% senior notes due in 2025 of subsidiary Brazos Valley Longhorn.

Chesapeake also is offering to exchange $1.5 billion of senior unsecured notes for the 11˝% notes outstanding. “The exchange is at a price significantly below par, which we consider a selective default on those notes,” the agency said in a press release.

The agency affirmed Chesapeake’s SD rating and lowered the ratings on the company's 8% senior notes due in 2026, 7˝% senior notes due in 2026, and 7% senior notes due in 2024 to CC from B+. The notes remain on CreditWatch with negative implications given the rating will be lowered to D at the close of the transaction, S&P said.

“Based on our current assumptions, we expect to raise the issuer credit rating on Chesapeake to CCC following the conclusion of the exchange. This reflects our expectation that Chesapeake could pursue further transactions to lower its high debt that we would consider a selective default. Thus, we rated the second-lien notes B-, with a 1 recovery rating. The 1 recovery rating indicates our expectation for very high (90%-100%; rounded estimate: 95%) recovery in the event of a payment default,” S&P said in a press release.

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