Close

S&P Raises Outlook on Chesapeake Energy (CHK) to Positive Following Asset Sale

October 16, 2014 12:04 PM EDT

Standard & Poor's Ratings Services said today it revised the rating outlook on Chesapeake Energy Corp. (NYSE: CHK) to positive from stable. We also affirmed our 'BB+' corporate credit rating on Chesapeake and our 'BB+' issue-level rating on the company's senior unsecured debt. The recovery rating on the debt remains '3', which indicates our expectation for a meaningful (50% to 70%) recovery in the event of a default. In addition, we affirmed our 'B+' issue rating on Chesapeake's preferred stock.

Chesapeake Energy Corp. and Southwestern Energy Co. have announced an agreement whereby Chesapeake is to sell its assets in the Southern Marcellus Shale and a portion of its assets in the Eastern Utica Shale to Southwestern for $5.375 billion. The company expects the transaction to close by year-end.

"Completion of the Southern Marcellus divestiture should provide Chesapeake with sufficient wherewithal to reduce financial leverage to a greater extent than assumed in our base case scenario, but management has not clarified the specific use of proceeds, and we perceive there to be uncertainty on this point," said Standard & Poor's credit analyst Scott Sprinzen.

We currently expect that if Chesapeake were to take actions that resulted in an incremental reduction of debt and debt-like liabilities of more than $5 billion-–such that debt and debt-like liabilities totaled less than $11 billion--then debt to EBITDA would be sustainably below 2x over the next two years. This could result in an upgrade and the revision of our financial risk profile assessment to significant from aggressive.

On the other hand, the rating could be jeopardized if, contrary to our expectations, there were some combination of a failure to complete pending asset sales, operating setbacks, or a growth strategy and financial policy that were more aggressive than we now anticipate.



Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In





Related Categories

Credit Ratings

Related Entities

Standard & Poor's