Fitch Ratings has assigned a ratings of 'BB' to
Chesapeake Energy Corporation's (Chesapeake) offering of $500 million
of 7.625% senior notes due 2013 and a rating of 'B+' to the company's
offering of $500 million of 6.25% mandatory convertible preferred
stock. The company has also priced an offering for 25 million shares
of its common stock at $29.05 per share for gross proceeds of
approximately $726 million. Both the preferred stock and common stock
offerings also have a 15% over-allotment option with potential
additional proceeds of $154 million. The senior notes were priced at
98.266% of par to yield 7.95% to maturity. Unlike the recent issues of
cumulative convertible preferred stock issued by Chesapeake which have
the option of early conversion by the holders or, under certain
circumstances, the company, the current offering of preferred stock
will automatically convert into common shares on June 15, 2009 if an
early conversion option has not been exercised. The company expects
the note and stock issuance to be completed by this Friday, June 30,
2006. Proceeds from the three offerings will be used to finance the
recently announced $932 million in Barnett Shale acquisitions as well
as to refinance borrowings under the company's secured revolving
credit facility which totaled $444 million at March 31, 2006.
Fitch rates Chesapeake's debt with a Stable Outlook as follows:
-- Issuer default rating (IDR) at 'BB';
-- Senior unsecured debt at 'BB';
-- Senior secured revolving credit facility and hedge facility at 'BBB-';
-- Convertible preferred stock at 'B+'.
In line with Fitch's expectations, Chesapeake continues to finance its aggressive acquisition strategy with a balanced mix of roughly 50% debt and 50% equity (note that Chesapeake issued $500 million of 6.5% notes due 2017 in the first quarter of 2006). Thus far in 2006, the company has announced or closed nearly $2.0 billion in acquisitions with the latest transactions expected to close by the end of July. Chesapeake's ratings continue to be supported by the size and 'low risk' profile of its oil and gas reserves, its robust organic reserve replacement and growth at economic costs and its conservative hedging strategy which has given a good line of sight to the expected cash flows over the next several quarters.
Of concern remains the rising cost of acquisitions and Chesapeake's leverage versus its peer group. As noted in Fitch's June 6, 2006 affirmation of Chesapeake's ratings, Fitch views the balanced acquisition financing positively. The company's debt-to-proven reserve metrics, however, are among the highest in the industry after allocating a percentage of the company's debt to the company's drilling rigs and a percentage of the company's preferred stock as debt. Future acquisitions remain almost a certainty and, given the prices for proven reserves and the mix of debt and equity, they will be leveraging as debt to reserve metrics will rise.
Chesapeake is an Oklahoma City-based company focused on the exploration, production and development of natural gas. The company's proved reserves remain predominantly natural gas and are based 100% in North America. Chesapeake's operations are concentrated primarily in the Mid-Continent, South Texas, the Permian Basin, and the Appalachia Basin. The company's reserve growth in recent years reflects the company's aggressive acquisition strategy and consistent success through the drill-bit.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch rates Chesapeake's debt with a Stable Outlook as follows:
-- Issuer default rating (IDR) at 'BB';
-- Senior unsecured debt at 'BB';
-- Senior secured revolving credit facility and hedge facility at 'BBB-';
-- Convertible preferred stock at 'B+'.
In line with Fitch's expectations, Chesapeake continues to finance its aggressive acquisition strategy with a balanced mix of roughly 50% debt and 50% equity (note that Chesapeake issued $500 million of 6.5% notes due 2017 in the first quarter of 2006). Thus far in 2006, the company has announced or closed nearly $2.0 billion in acquisitions with the latest transactions expected to close by the end of July. Chesapeake's ratings continue to be supported by the size and 'low risk' profile of its oil and gas reserves, its robust organic reserve replacement and growth at economic costs and its conservative hedging strategy which has given a good line of sight to the expected cash flows over the next several quarters.
Of concern remains the rising cost of acquisitions and Chesapeake's leverage versus its peer group. As noted in Fitch's June 6, 2006 affirmation of Chesapeake's ratings, Fitch views the balanced acquisition financing positively. The company's debt-to-proven reserve metrics, however, are among the highest in the industry after allocating a percentage of the company's debt to the company's drilling rigs and a percentage of the company's preferred stock as debt. Future acquisitions remain almost a certainty and, given the prices for proven reserves and the mix of debt and equity, they will be leveraging as debt to reserve metrics will rise.
Chesapeake is an Oklahoma City-based company focused on the exploration, production and development of natural gas. The company's proved reserves remain predominantly natural gas and are based 100% in North America. Chesapeake's operations are concentrated primarily in the Mid-Continent, South Texas, the Permian Basin, and the Appalachia Basin. The company's reserve growth in recent years reflects the company's aggressive acquisition strategy and consistent success through the drill-bit.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
© 2006 Business Wire
