Moody's Investors Service lowered its rating outlook on Chesapeake Energy (CHK) and some of its divisions to negative from stable, in part because of liquidity worries but also as a result of the recent news about CEO Aubrey McClendon's borrowing agreements with the company.
"The negative outlook reflects the escalating execution risk of Chesapeake's plan for funding its large capital spending budget, rising leverage metrics and accompanying liquidity concerns," analyst Pete Speer said in a press release Wednesday. "The company's already diminished cash flows are vulnerable to further declines in natural gas prices and it remains dependent on completing asset sales and other financing transactions with third parties to maintain adequate liquidity and fund its transition towards higher liquids production."
Additionally, the notice from Moody's said that McClendon's financing transactions "have raised conflict of interest questions and reflect poorly on Chesapeake's corporate governance."
The commentary from the ratings agency came after a new report that McClendon arranged a previously undisclosed $450 million loan in recent weeks. Reuters, which has been leading the coverage of the Chesapeake matter since mid-April, said the loan deal was reached before the company determined that McClendon would give up his other title of chairman. The agreement was made with EIG Global Energy Partners, "which was at the same time helping arrange a major $1.25 billion round of financing for Chesapeake itself," the report said.
According to the report, which cited a person with knowledge of the matter, the loan takes McClendon's lending agreements with EIG to $1.33 billion since 2010.
The report is the latest in a series of revelations about McClendon's not exactly run of the mill agreements. Last week, Reuters reported that in the mid-2000s, he was involved in running a $200 million hedge fund while leading the company. That report itself followed an article stating that he had borrowed up to $1.1 billion over the past three years by putting up as collateral his interests in company-owned oil and natural gas wells.
Shares of Chesapeake were recently up 54 cents, or 3.2%, to $17.47.
Earlier this week, Chesapeake's largest investor, Southeastern Asset Management, sent the company a letter encouraging it to, among other things, focus on maximizing its cash flow and not rule out potential takeover efforts if a full and fair opportunity should come along. Southeastern owns more than 13% of Chesapeake's stock.
- Chesapeake Energy
- Aubrey McClendon