After years of melting, the Chesapeake icecube is finally history: at exactly 350pm on Sunday afternoon, the company that launched the US shale boom, finally gave up and filed for a pre-packaged bankruptcy in the Southern District of Texas. In so doing, the company with roughly $9.5 billion in debt has become one of the biggest victims of a spectacular collapse in energy demand from the virus-induced global recession, and follows the collapse of another high-flyer in the US oil patch, Whiting Petroleum, which filed for Chapter 11 at the start of April after championing what was once the premiere U.S. shale field, the Bakken of North Dakota.
As part of its prepack agreement, Chesapeake announced that it had entered into a Restructuring Support Agreement (“RSA”) with 100% of the lenders under its revolving credit facility, holders of approximately 87% of the obligations under its Term Loan Agreement, approximately 60% of its senior secured second lien notes due 2025, and approximately 27% of its senior unsecured notes, pursuant to which Chesapeake will implement a Chapter 11 plan of reorganization to eliminate approximately $7 billion of debt.
Of course, since 73% of unsecured bondholders refused to sign off on the deal, expect a very vicious bankruptcy fight over the recoveries, as hedge funds that accumulated positions in the bonds unleash hell in their fight with the secureds (even as the equity committee claims that all classes above it should be unimpaired).
Also, we have some bad news for Jefferies, which won’t be able to repeat its hilarious attempt to fund the company in bankruptcy by selling stock to Robnhood daytraders: as part of the RSA, the Company has secured $925 million in debtor-in-possession financing lenders under Chesapeake’s revolving credit facility. The DIP will provide Chesapeake the capital necessary to fund its operations during the Court-supervised Chapter 11 reorganization proceedings.
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