Chesapeake Energy Starts Bankruptcy Countdown
By Alexander Gladstone
June 16, 2020 - Chesapeake Energy Corp., headquartered in Oklahoma City, Oklahoma, is preparing to file for bankruptcy in as soon as a week after the pioneering shale driller missed an interest payment due on Monday, according to people familiar with the matter.
The roughly $10 million payment to bondholders was due Monday. The missed payment starts a grace period allowing Chesapeake to continue to talk to creditors, but the company is expected to file for bankruptcy within weeks if not days, the people said.
The company, a pioneer in shale fracturing methods, has tapped Alvarez & Marsal as restructuring adviser, along with law firm Kirkland & Ellis LLP and investment banker Rothschild & Co., people familiar with the matter said.
Chesapeake's revolving lenders have hired law firm Sidley Austin LLP and investment bank Houlihan Lokey Inc., while another group of senior lenders is working with advisers from Davis Polk & Wardwell LLP and Perella Weinberg Partners, one of the people said.
The company has been negotiating a deal in which senior lenders would be poised to convert their holdings into the bulk of equity in the company. Funding for the bankruptcy would come from a roughly $1 billion bankruptcy loan, the person said.
A Chesapeake representative didn't respond to requests for comment.
Chesapeake said last month it was analyzing all available strategic alternatives to address its capital structure and improve its financial position, including considering bankruptcy as an option. The company has more than $9 billion of debt on its books.
Co-founded in 1989 by the late wildcatter Aubrey McClendon along with his partner Tom Ward, Chesapeake was a key player in the U.S. shale fracking boom. But the immense debt load it took on as it acquired acreage and expanded its business became unsustainable due to the prolonged slump in energy markets.
During an earlier oil bust a few years ago, Chesapeake managed to avoid bankruptcy by completing a series of out-of-court debt exchanges. However, financial engineering is no match for the most recent pricing collapse, driven by a plunge in demand from the coronavirus pandemic coupled with a global supply glut.
The collapse in commodity markets earlier this year made it difficult for the company to address its near-term debt obligations and has hammered its stock and bond prices. The company recently said that it had doubts about its ability to remain a going concern when it reported its first-quarter loss of about $8 billion, compared with a loss of $21 million the prior year.