Chesapeake Energy Corp. pledged almost all of its natural gas fields, real estate and derivatives contracts to maintain access to a $4 billion line of credit as the shale gas producer grapples with falling energy prices. The stock was the top performer in the Standard & Poor’s 500 Index.
Chesapeake amended a secured revolving credit agreement that matures in 2019 with lenders, who agreed to postpone the next evaluation until June 2017, the Oklahoma City-based company said in a statement Monday. Such reassessments normally occur twice a year. In exchange, Chesapeake pledged “substantially all of the company’s assets, including mortgages encumbering 90 percent of all the company’s proved oil and gas properties” as collateral, according to a regulatory filing on Monday.
Chesapeake’s stock and bonds have fallen amid investor concern over the second-largest U.S. gas driller’s ability to shoulder a debt load three times larger than its market value. Chief Executive Officer Doug Lawler has employed a combination of debt exchanges, asset sales and open-market purchases of Chesapeake’s cut-rate bonds to reduce leverage and cope with falling gas prices.
The lenders’ agreement will provide Chesapeake “time to ride out a low commodity price environment,” Citigroup analysts led by Marisa Moss said in a note to clients on Monday. The company probably will issue a secured, first-lien term loan to retire its remaining 2017 and 2018 bonds, the analysts said.
Chesapeake rose 13 percent to $4.24 at 11:34 a.m. in New York, after earlier jumping 15 percent. The stock was the biggest intraday gainer in the S&P 500. The advance trimmed Chesapeake’s year-to-date slide to about 6 percent. Last year, shares tumbled 77 percent for the worst annual performance since 1998.
Chesapeake’s $1.1 billion of 5.75 percent notes maturing in March 2023 jumped 3.25 cents to 36.25 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Chesapeake’s main focus is 2017 and 2018 “maturity management,” Lawler said in a presentation to analysts last month. The company lost about $40 million a day in 2015 and is expected to end this year in the red as well, based on the average estimate of 14 analysts in a Bloomberg survey.
In addition to most of its gas and oil reserves, Chesapeake pledged as collateral all hedge contracts, property, deposit accounts and securities, subject to certain undisclosed carve-outs, according to the regulatory filing.
The amendment includes a collateral value coverage test, which Chesapeake said may limit its ability to tap the credit line. The revision also provides temporary covenant relief, with a key measure of indebtedness suspended until September 2017. During the grace period, Chesapeake promised to maintain minimum liquidity of $500 million. Chesapeake also maintains the right to incur as much as $2.5 billion of first lien indebtedness.
Exxon Mobil is the largest producer of gas from U.S. fields.