Chesapeake Surprises By Keeping $4B Borrowing Base

Chesapeake Surprises By Keeping $4B Borrowing Base
Chesapeake surprises investors by keeping its $4 billion loan from banks despite concerns about its liquidity position at a time when many oil and gas producers are seeing their credit cut.

Reuters

April 11 (Reuters) - Chesapeake Energy Corp surprised investors on Monday by keeping its $4 billion loan from banks despite concerns about its liquidity position at a time when many oil and gas producers are seeing their credit cut.

In a sign that big producers such as Chesapeake, the No. 2 U.S. natural gas producer, still have considerable pull with banks reluctant to pull away from long-term clients, the revised loan agreement gave the company relief on three fronts.

It suspended the senior secured leverage ratio covenant through September of 2017, slashed the interest rate coverage ratio by nearly half through next March, and said Chesapeake can skip its next semi-annual loan review so it will not have to face another one until June of next year.

Oklahoma City-based Chesapeake said it won the relief after pledging additional assets as collateral.

The revised credit agreement gives Chesapeake the right to take on up $2.5 billion of first lien indebtedness.

Investors quickly pushed up Chesapeake's shares more than 13 percent to $4.24 each, stoking hopes it would have an easier time weathering a sharp downturn in oil and gas prices, though futures markets show U.S. crude prices will be stuck near $40 a barrel for several years.

In February, the company's stock price slid by half before it said it was not considering filing for bankruptcy and that it had been working with advisers Kirkland & Ellis since 2010.

Not all companies have fared as well as Chesapeake in redetermination rounds. Every six months, most energy companies review their credit limits with banks, based on the value of their oil and gas reserves.

Bill Barrett Corp, a small producer, said on Monday that its borrowing limit was cut by 11 percent to $335 million.

Oil prices have dropped more than 60 percent from their peaks in June 2014.

Just a few weeks into the current round of talks, over a dozen companies have had their loan limits cut by a total of $3.5 billion, or a fifth of available credit, according to data compiled by Reuters. (http://tmsnrt.rs/1S9304F)

At that rate, $10 billion more of bank credit will disappear as the remaining credit lines of about $50 billion come under scrutiny in talks that stretch into May.

(Reporting by Anya George Tharakan and Arathy S Nair in Bengaluru; Editing by Kirti Pandey and Tom Brown)

Copyright 2016 Thomson Reuters. Click for Restrictions.

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