X-S&P Rates Chesapeake Energy $2.425 Billion Notes 'BB-'

X-S&P Rates Chesapeake Energy $2.425 Billion Notes 'BB-'

Tuesday, January 05, 2016 11:32 pm

NEW YORK (Standard & Poor's) Jan. 5, 2016--Standard & Poor's Ratings Services said today

it assigned its 'BB-' issue-level rating to Oklahoma City-based Chesapeake Energy Corp.'s

$2.425 billion 8% senior secured second-lien notes due 2022. The recovery on the notes is

'1', indicating our expectation of very high (90% to 100%) recovery if a payment default

occurs. We note, however, that the junior lien basket under the company's $4.0 billion

credit facility could allow Chesapeake to issue up to an additional $1.575 billion of

junior-lien debt. A material issuance of additional permitted second-lien debt could

result in a one-notch downgrade based on our Sept. 30, 2015 recovery PV-10 value of about

$7.65 billion after administrative costs.


The 'B' corporate credit rating on Chesapeake Energy reflects our assessments of the

company's "fair" business risk, "highly leveraged" financial risk, and "adequate"

liquidity. The ratings incorporate the company's very high costs related to gathering,

transporting, and marketing that largely offset Chesapeake's otherwise low operating

costs. The negative impact on profitability offsets the benefits of Chesapeake's large

and geographically diverse resource base of onshore U.S. unconventional natural gas and

liquids assets. We expect Chesapeake's financial risk profile to remain "highly

leveraged".


(For the corporate credit rating rationale, see our research update on Chesapeake Energy

published on Dec. 22, 2015.)