Fracking pioneer Chesapeake Energy Corp (CHK) is preparing to file for bankruptcy as soon as this week, three people familiar with the matter have told Reuters.
According to the Reuters sources, CHK is now wrapping up negotiations for a $900 million debtor-in-possession loan. It is also discussing with creditors the potential to “roll up” its existing debt and make it part of the bankruptcy loan, bringing the total debtor-in-possession financing closer to $2 billion, the sources said.
At the same time the company is also looking for an equity infusion from creditors. Chesapeake plans to file for bankruptcy on Thursday, but if the financing required further discussions this could move to next week, the sources added.
If the company lives on post-bankruptcy, creditors like Franklin Resources Inc will take over Chesapeake in exchange for deleting over $7 billion of debt, Reuters reports.
With a massive debt burden of around $9 billion, CHK missed an interest payment on Monday, the sources said, and there is another payment-date fast approaching on July 1.
Unsurprisingly, the stock shows a Strong Sell Street consensus, with 5 recent sell ratings vs just 1 hold rating. Meanwhile the average analyst price target stands at $16.50 (13% downside potential).
Shares have plunged a whopping 89% year-to-date, with the oil and gas giant reporting a “going concern” warning in its May quarterly financial filing.
“We do not expect [Chesapeake] to be in compliance with its financial covenants beginning in Q4 2020, which would result in an act of default on the credit facility,” CFRA analyst Paige Meyer told investors back in May.
“With a default on the credit facility, we believe other lenders are likely to call debt due as well using ‘cross default’ clauses.” She downgraded the stock to Strong Sell with a $0 price target. (See Chesapeake stock analysis on TipRanks).
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