Chesapeake Energy to price $500 million of mandatories talked to yield 5.875%-6.375%, up 20%-25%

By Rebecca Melvin

Princeton, N.J., June 26 - Chesapeake Energy Corp. plans to price $500 million of mandatory convertible preferred stock talked to yield 5.875% to 6.375% with an initial conversion premium of 20% to 25%, according to market sources.

Concurrent with the mandatory preferreds, Chesapeake plans to offer 20 million shares of common stock and $500 million of seven-year senior notes.

The three-year mandatories are expected to price Tuesday after the close, according to sources.

Goldman, Sachs & Co., Banc of America Securities LLC, Credit Suisse, Lehman Brothers Inc. and UBS Securities LLC will act as joint book-running managers, with Goldman as sole physical books.

There is a greenshoe of $75 million.

The mandatories are provisionally callable through a coupon make-whole if the stock price is 150% of the threshold appreciation price.

There is dividend protection via a conversion ratio adjustment for any increase in cash dividends above $0.065 in any quarter. There is also investor protection in the event of a fundamental change of control.

Proceeds from the offering, together with proceeds from the concurrent public offerings of senior notes and common stock, are expected to fund Chesapeake's recently announced Barnett Shale acquisitions for $932 million, to repay outstanding debt under its revolving credit facility and for general corporate purposes.

The offering will be made under a shelf registration statement that became effective on Dec. 8.

Oklahoma City-based Chesapeake is the second-largest independent natural gas producer in the United States.

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