Chesapeake Energy Corporation stock crashed today, losing about half its value when news hit that the company had hired a restructuring firm.
Chesapeake Energy hired Kirkland & Ellis to help them restructure a $9.8 billion debt load. News of the hire was reported by the trade publicatio, Debtwire on Friday night.
Chesapeake had a debt load eight times larger than its market value. Last year, the company had canceled drilling projects, slimmed down the workforce by about 15 percent, and even closed offices to stem the tide of outgoing cash flow.
In the third quarter of 2014, Chesapeake reported a profit of $169 million. In the third quarter of 2015, the very same quarter, the company had a $4.69 billion loss.
The company had converted $3.8 billion of unsecured debt into new, secured notes, but the bonds then dropped on the secondary market. Last month, the company even suspended dividend payments on preferred stock, following the footsteps of other energy companies who were also trying to reduce cash outflows.
Restructuring firms like Kirkland & Ellis and Lazard have been advising their clients to draw down whatever cash they have left on their revolving accounts at the bank to help get through the next quarter. In essence, they are “maxing out their credit cards before the banks can cut them off,” reported Forbes.
— MarketWatch (@MarketWatch) February 8, 2016
Linn Energy said this was what it had to do, maxing out over $4 billion in credit lines. Linn’s shares are down 24 percent today, on top of losing 50 percent on Friday. Their debt is now trading below 20 cents.
In early trading, the shares (CHK.N) dropped a record 51 percent to $1.50 reported Reuters. Forbes reported that shares in the company were stopped mid-morning after a sell off to more than 50 percent new lows.
Three circuit-breaker halts were triggered by the steep drop in the first half hour of trading this morning. Over $838 million in market value was eliminated in the first trading hour, reports Bloomberg.
— BooRadley (@brad30097) February 8, 2016
Forbes reported that at $1.55 a share, a price which is down 95 percent in the last year, the company’s equity value is now just over $1 billion.
Chesapeake issued a statement today on PRNewswire, aiming for damage control.
“Chesapeake Energy Corporation (NYSE: CHK) stated today that Kirkland & Ellis LLP has served as one of Chesapeake’s counsel since 2010 and continues to advise the company as it seeks to further strengthen its balance sheet following its recent debt exchange. Chesapeake currently has no plans to pursue bankruptcy and is aggressively seeking to maximize value for all shareholders.”
Bankruptcy hit roughly 40 companies last year, reports Reuters. More bankruptcies are expected in the next few months because oil prices have plunged about 75 percent in the last two years.
According to Forbes, most of the oil companies cannot survive at such low oil prices. A presentation by Chesapeake in December claimed that they required about $40 or so to simply break even on their most economic oil fields.
Chesapeake Energy is the second-largest natural gas producer in the United States. The company headquarters are stationed in Oklahoma City. Founded in 1989 by Aubrey McClendon and Tom Ward, the company got started with a $50,000 investment and 10 employees. The name came from McClendon’s love of the Chesapeake Bay area, reports Wikipedia.
The company has been well run. It was recognized by Forbes as the “Best Managed Oil-and-Gas Company” in 2007. From 2008-2014, it was listed in Fortune Magazine’s 100 Best Companies to Work For. In 2009, it was named the Energy Producer of the Year by Platts Global Energy Awards.
One would not think that Chesapeake Energy’s stock would crash so far and so fast.
[Photo via Twitter]