July 6, 2020
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Chesapeake Files For Bankruptcy, Wiping Out $7 Billion In Debt And Any Existing Equity Value

Chesapeake Files For Bankruptcy, Wiping Out $7 Billion In Debt And Any Existing Equity Value

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After many years of melting, the Chesapeake Ice Cube finally became history: at exactly 350 p.m. on Sunday evening, the company that started the American shale boom finally gave up and filed for bankruptcy in the Southern District of Texas. At the same time, a company with debts of about $ 9.5 billion became one of the largest victims of an impressive drop in energy demand as a result of the global recession caused by the virus and followed the collapse of another major US oil spill, Whiting. Petroleum, which filed for Chapter 11 in early April after becoming the champion of the former North Shaketa oil shale field in North Dakota.

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As part of the product packaging agreement, Chesapeake announced that he entered to the Restructuring Support Agreement (“RSA”) with 100% of lenders under its revolving credit line, holders of approximately 87% of the obligations under its Term Loan Agreement, approximately 60% of its senior secured second collateral bonds with maturity until 2025, and approximately 27% of his senior unsecured notes, under which Chesapeake will implement a reorganization plan under Chapter 11 to eliminate approximately $ 7 billion of debt,

Of course, as 73% of unsecured bondholders refused to sign a deal, expect a very fierce fight against bankruptcy due to returns, as hedge funds that have accumulated positions in bonds release hell in their fight against secured ones (even if the stock committee claims that all classes above it should be intact) ,

In addition, we have bad news for Jeffries, who will not be able to repeat his ridiculous attempt to finance the company in bankruptcy by selling shares to Robnhood day traders: as part of the RSA, the Company received US $ 925 million as debtor-owned lenders through a Chesapeake revolving credit facility. DIP will provide Chesapeake with the capital necessary to finance its activities during the reorganization process, carried out under the supervision of the court.

To summarize: Chesapeake, who goes into bankruptcy with debts of just over $ 9.5 billion …

… will liquidate about $ 7 billion and receive financing of $ 2.5 billion to exit, consisting of a new revolving credit line of $ 1.75 billion and a new long-term loan of $ 750 million. In addition, according to RSA, the Company enjoys the support of its term credit lenders and secured bills holders to support the offer of rights of $ 600 million upon exit.

Doug Lawler, President and CEO of Chesapeake, said: “We are fundamentally rebuilding Chesapeake’s capital structure and business to address our financial weaknesses and capitalize on our significant operational advantages.Eliminating debt of about $ 7 billion. In the United States, and by eliminating the legacy of contractual obligations that hindered our work, we are positioning Chesapeake to capitalize on our diverse operating platform and proven track record in improving investment and operating efficiency as well as technical excellence.“With these demonstrated strengths and advantages of an appropriately sized capital structure, Chesapeake will be uniquely positioned to exit the process described in Chapter 11 as a stronger and more competitive enterprise.”

Lawler concluded: “Over the past few years, our dedicated employees have transformed Chesapeake’s business — increasing capital efficiency and operating performance, cutting costs, reducing debt, and diversifying our portfolio. Despite the fact that we have removed more than $ 20 billion from leverage and financial liabilities, we believe that this restructuring is necessary for long-term success and creating business value. ”

In addition to leverage, Lawler also removed the entire cost of capital, because with the destroyed senior debt of $ 7 billion, there are no questions: ordinary shares have no value and will almost certainly be removed from the list immediately to avoid any potential “misunderstandings” in the case of the Army of 10-year-old veteran traders, Robinhood decided to increase it by several hundred percent.

And speaking of company stocks and day trading, this as if 216,915 merchants Robinhood suddenly cried out in horror and suddenly fell silent.

What for? As according to RobinTracksome 216,915 users who held stocks as of April 14 and whose number has certainly grown in recent days after stocks soared to $ 84.75. June 8, during the peak of retail euphoria that caused the bankruptcy of Hertz shares, also soared. . and inspired Jeffriss to read this blog and come up with a failed attempt to sell Robinhooders useless stocks.

However, in a crazy market like this, it is certainly possible that Cheka shares, which the company recognizes are worth about $ 7 billion, could rise tomorrow … simply because.

* * *

Finally, some corporate stories are kindly provided by Bloomberg:

About ten years ago, Chesapeake was a $ 37.5 billion giant led by the late Aubrey McClendon, a vibrant and outspoken advocate for the gas industry, who died on March 2, 2016 in that seemed suicideIt was at the forefront of the factional revolution that transformed the US oil and gas industry, starting a struggle for previously unused oil shale reserves. The company discouraged checks for entrepreneurs and residents of Fort Worth as an incentive to drill on its land in Barnett Slate, North Texas, the first US shale field to hit the world

These crazy days did not last long. Natural gas in the United States fell sharply after the financial crisis, as factionalists overwhelmed demand and prices still have not revised their previous highs. Investors spoiled on Chesapeake, which at that time was not only burdened with debt, but also burdened with an empire of real estate, including shopping centers, a church and a grocery store. McClendon was overthrown in 2013 and died three years later in a car accident.

In subsequent years, management sought to compensate for the reduction in its gas conditions by switching to oil exploration, as oil production turned the United States into the world’s largest producer of crude oil, as well as a major exporter. However, any optimism about this strategy has evaporated with the recent collapse in oil prices amid the Covid-19 pandemic.

Lawler adopted Chesapeake in 2013 with the goal of reducing the debt burden, which was higher than Exxon Mobil Corp., a company that at that time was 29 times the market value of Chesapeake. He counted on reducing capital expenditures and selling assets to cover debt. Last year, the company was negotiating with Jerry Jones, owner of billionaire Dallas Cowboys, to sell $ 1 billion in shale assets, but the deal did not materialize.

In May, Lawler was forced to abandon his company’s forecast for the entire year and record $ 8.5 billion worth of assets, as energy demand fell amid the closure of Covid-19. By then, the market value of the manufacturer had fallen to less than $ 200 million.

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