Chesapeake Revives Going Concern Warning

Shares of Chesapeake Energy Corp. slid almost six percent in premarket trading on Monday, after the company added a going concern warning back into its 10-Q quarterly filing with the Securities and Exchange Commission. It has been less than three months since the company initially removed the warning from its annual report.

“We expect to see continued volatility in oil and natural gas prices for the foreseeable future, and such volatility, combined with the current depressed prices has impacted and is expected to continue to adversely impact our business,” the company stated in the filing. “If the current depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant and an expected significant reduction in our borrowing base in our scheduled determination, then our liquidity and our ability to comply with our financial covenants during the next 12 months will be adversely affected.”

Based on its current forecast, the company does not expect to be in compliance with its financial covenants beginning in the fourth quarter of 2020. This could lead to default under its revolving credit facility, the potential acceleration of outstanding debt and possible foreclosure on the collateral securing such debt, the company said.

The company has engaged advisors to evaluate strategic alternatives which may include a restructuring, amendment or refinancing of existing debt through filing for Chapter 11 bankruptcy. However, the company warned that it could not provide assurances that the efforts would be successful.

“As a result of these uncertainties and the likelihood of a restructuring or reorganization, management has concluded that there is substantial doubt about the company’s ability to continue as a going concern.”

At mid-day on May 11, the company’s shares were trading at $12.83 each, down from the opening price of $14.46.

To contact the author, email bertie.taylor@rigzone.com.