S&P Places Chesapeake Energy's (CHK) First- and Second-Lien Debt Ratings on CreditWatch Positive
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- Chesapeake Energy upsized its first-lien second-out term loan facility to $1.5 billion from $1 billion
- Chesapeake has conveyed its interests in the Barnett Shale to Saddle Barnett Resources LLC.
- The combination of the above transactions leads to significantly improved liquidity supported by lower operating costs and greater expected availability under the company's $4 billion credit facility.
- We could raise the corporate credit rating to 'CCC+' following the conclusion of the existing tender offers, if we feel a sufficient amount of near-term maturities have been addressed.
- We are placing the senior secured first-lien and second-lien ratings on CreditWatch with positive implications.
S&P Global Ratings today placed its 'B-' first-lien and 'CCC+' second-lien senior secured debt and issue ratings of Chesapeake Energy Corp. (NYSE: CHK) on CreditWatch with positive implications. The recovery ratings on the first-lien credit facility and first-lien second-out term loan facility remain '1', indicating our expectation of very high (90%-100%) recovery in the event of default. The recovery rating on the second-lien debt is '2', indicating our expectation of substantial (substantial (lower end of the 70%-90% range) recovery in the event of default.
The 'CC' corporate credit rating, negative outlook, and senior unsecured debt ratings are unaffected.
"The CreditWatch placement follows the announcement that Chesapeake has raised the size of its first-lien second-out term loan facility to $1.5 billion from $1 billion, resulting in improved liquidity and ability to address its 2017 and 2018 maturities and expected negative cash flows," said S&P Global Ratings credit analyst Paul Harvey. "The additional liquidity will augment the benefits from the recent conveyance of the Barnett Shale Assets to Saddle Barnett Resources LLC, which should increase operating income between $200 million to $300 million per year through 2019 by eliminating related minimum volume commitment payments and reducing gathering, processing, and transportation costs for the company," he added.
As a result of the above, we expect that Chesapeake is in a significantly better position to address upcoming maturities and putable debt than previously expected, and, depending on the results of the existing tender offers, we could raise the corporate credit rating post-tender to 'CCC+'. This, in turn, would result in the secured debt ratings rising one-notch above current levels.
We intend to resolve the CreditWatch listings shortly after the close of the tender offers on Sept. 12, 2016.
The outlook on the corporate credit rating remains negative. Once the transaction has closed, we will lower the corporate credit rating to 'SD' and the rating on the 2020 and 2023 senior unsecured notes to 'D', assuming their participation in the tender.
We will reevaluate the company's corporate credit rating and issue-level ratings following the close of the tender. Emphasis will be placed on our liquidity expectations in the face of a still significant maturity schedule through 2018 and beyond.
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