Chesapeake Energy changes revolver to secured, amends covenants

By Angela McDaniels

Tacoma, Wash., Sept. 30 – Chesapeake Energy Corp. changed its $4 billion revolving credit facility due 2019 to a senior secured facility from a senior unsecured facility, according to a company news release.

The initial borrowing base was confirmed at $4 billion, consistent with current availability.

The amendment suspended the total leverage ratio financial covenant of 4 times on a trailing 12-month basis and added two new financial covenants: a senior secured leverage ratio of 3.5 times through 2017 and 3.0 times thereafter and an interest coverage ratio of 1.1 times through the first quarter of 2017, which will increase incrementally to 1.25 times by the end of 2017.

The revolver may become unsecured when specific conditions are met. During an unsecured period, the total leverage ratio would be reinstated and the senior secured leverage ratio and interest coverage ratio would no longer apply.

While Chesapeake’s obligations under the facility are secured, the amendment gives Chesapeake the ability to incur up to $2 billion of junior lien debt.

As of Wednesday, Chesapeake had $12 million of outstanding letters of credit under the facility, leaving the remainder of the $4 billion available.

“This amendment to our existing revolving credit facility gives Chesapeake greater flexibility and access to our liquidity,” chief financial officer Nick Dell’Osso said in the news release.

“The new senior secured leverage ratio, which begins at 3.5x, and new interest coverage ratio, which begins at 1.1x coverage, provide us with full access to the facility’s capacity under current market conditions.

“Along with opportunities for additional proceeds from potential asset divestitures, joint ventures and farm-out agreements and an estimated reduction in our 2016 cost structure of more than $200 million through production and G&A cost improvements, this amendment places Chesapeake in a position of greater strength and flexibility.”

Chesapeake Energy is an oil and natural gas producer based in Oklahoma City.

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