Chesapeake (CHK) Closes $1.25B Conv. Notes Offering, Private Purchase and Exchange Agreements

October 5, 2016 4:10 PM EDT

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Chesapeake Energy Corporation (NYSE: CHK) provided an update on the significant improvements in its capital structure following recent transactions. Today, the company closed a private placement of $1.25 billion of unsecured convertible senior notes, with a provisional call feature that will give Chesapeake an opportunity to convert the debt to equity in three years if the company's stock trades above 130% of the conversion price for a specified period. The company's cash on hand as of September 30, and pro forma for the convertible debt issuance, was approximately $1.0 billion with no borrowings on its revolving bank credit facility.

Additionally, today the company closed privately negotiated purchase and exchange agreements under which the company exchanged approximately 110.3 million shares of its common stock for (i) 134,000 shares of 5.00% Cumulative Convertible Preferred Stock (Series 2005B), (ii) 606,271 shares of 5.75% Cumulative Convertible Preferred Stock and (iii) 553,007 shares of 5.75% Cumulative Convertible Preferred Stock (Series A). This amount of preferred stock represents approximately $1.2 billion of liquidation value, which was exchanged at a discount of over 40 percent. As a result of these exchange transactions, the company's common shares currently outstanding are approximately 886 million, before giving effect to future dilution from convertible securities.

Chesapeake Chief Executive Officer Doug Lawler commented, "Through the transactions that closed today, we have substantially improved our capital structure. The issuance of the new unsecured convertible notes, plus the significant reduction in our preferred stock at a deep discount, results in additional liquidity and less preferred equity and is accretive to our capital structure. With the cash proceeds from the convertible note offering, we have taken measures to provide excess liquidity to address the remaining maturities of our debt through 2018, before any incremental proceeds from the potential asset sales that we are currently working. These transactions represent major steps toward reaching our financial goals of $2-3 billion of debt reduction and growing production within free cash flow. We continue to make great progress in simplifying the balance sheet and reducing the overall cost of financing, and we remain intently focused on further reductions to our operating and capital cost structure."

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