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Chesapeake Jumps 16% on $1.5B Term-Loan Facility Securement

Zacks Equity Research

Chesapeake Energy Corporation CHK surged more than 16% on Dec 4, after the struggling upstream energy player announced the securement of debt financing to boost its financial flexibility.

Last month, the company warned investors in its 10-Q statement that it doubts its ability to continue as a going concern. Chesapeake added in the statement that it could be difficult to conform to the leverage ratio covenant in the coming 12 months if the pricing scenario of crude oil and natural gas continues to be unfavorable.

Investors cheered Chesapeake’s recent debt financing initiatives owing to which the stock jumped roughly 32% from the 25-year low closing price of 56 cents on Nov 19.

Chesapeake announced the engagement of several banks, including JPMorgan Chase & Co JPM, for arranging a $1.5-billion term loan facility. Notably, the term of the secured first lien loan is 4.5 years. With the net proceeds, the company will be funding its tender offer for unsecured notes that was issued by its affiliates — Brazos Valley Longhorn LLC ("Brazos Valley") and Brazos Valley Longhorn Finance Corp. The proceeds will also be allocated for retiring the existing secured revolving credit facility of Brazos Valley.

With the transactions, Chesapeake believes it has strengthened its balance sheet considerably. Investors should also know that the rally in the natural gas explorer’s stock price is likely to continue on rising gas demand for room heating purposes in the winter season.

Headquartered in Oklahoma City, Chesapeake is focused on exploring and producing oil and natural gas from onshore resources in the United States. Currently, the stock carries a Zacks Rank #3 (Hold). Meanwhile, a couple of better-ranked players in the energy space are Murphy USA Inc MUSA and CNX Resources Corporation CNX. While Murphy USA sports a Zacks Rank #1 (Strong Buy), CNX Resources carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA beat the Zacks Consensus Estimate in three of the prior four quarters.

CNX Resources surpassed the Zacks Consensus Estimate in two of the prior four quarters. It has a positive earnings surprise of 34.8%, on average, for the trailing four quarters.

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