U.S. Shale giant Chesapeake Energy Corp files for Chapter 11 bankruptcy protection

In a development that marks the biggest U.S. oil and gas producer seeking bankruptcy protection following heavy debts whose effects were compounded by the Wuhan coronavirus, Chesapeake Energy Corp has filed for Chapter 11 bankruptcy protection bringing an end to an era for the shale pioneer and comes after months of negotiations with creditors.

Co-founded by Aubrey McClendon, an early and high profile advocate of shale drilling who died in 2016 in a fiery one-car crash in Oklahoma, he built Chesapeake from a small wildcatter to a top U.S. producer of natural gas and is the 6th biggest producer by volume.

In 2013, Chesapeake inherited the company which was saddled with nearly $13 billion in debt managed to trim it down with asset sales and spending cuts, but this year’s historic oil price crash left Chesapeake without the ability to refinance its debt.

“Despite having removed over $20 billion of leverage and financial commitments, we believe this restructuring is necessary for the long-term success and value creation of the business,” said Lawler in a statement while announcing the Chapter 11 filing.

In a statement, Chesapeake said, it plans on eliminating around $7 billion of its debt; according to a separate court filing, Chesapeake has more than $10 billion in liabilities and assets.

The Saudi-Russia oil price war along with the coronavirus pandemic that came from China plunged Chesapeake’s outlook since oil prices fell to their record lows resulting in its first-quarter losses of more than $8 billion.

On Friday, Chesapeake’s stock traded at $11.85, down 93% since the start of 2020, leaving it with a market value of $116 million.

It has entered into a restructuring support agreement, thanks to the backing of its main credit facilitators, some of which are providing $925 million of debtor-in-possession (DIP) financing to help fund operations during the bankruptcy proceedings.

The agreement also has backing from portions of other creditors, including those behind 87% of its term loan, and holders of 60% and 27%, respectively, of its senior secured second lien notes due 2025, and senior unsecured notes.

Although its statement does not name its creditors, investment firm Franklin Resources is among the most significant of them.

Chesapeake also has agreed the principal terms for a $2.5 billion exit financing, while some of its lenders and secured note holders have agreed to backstop a $600 million offering of new shares, to take place upon exiting the Chapter 11 process, it said in a statement.

Chesapeake’s filing in U.S. Bankruptcy Court for the Southern District of Texas is the biggest bankruptcy of an U.S. oil and gas producer to date.

Chesapeake’s advisers are investment banks Rothschild & Co and Intrepid Partners, law firm Kirkland & Ellis LLP, and turnaround specialists Alvarez & Marsal.

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