CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BB-' rating to Chesapeake Energy's $3 billion senior notes offering due 2019 and 2022. The proceeds of this offering will be used to tender for the 9.5% senior notes due 2015 and to refinance other debt. A full list of ratings appears at the end of this release.
KEY RATINGS DRIVERS
Chesapeake's ratings reflect the large company's size, operating and asset profile and its levered capital structure. At the end of 2013, the company had proved reserves of nearly 2.7 billion barrels of oil equivalent (boe) with 68% of those reserves being proved developed (PD). The company possesses attractive asset positions in the Marcellus Shale, Eagle Ford Shale and Mid-Continent regions among others. Production for 2013 was almost 670,000 boe per day with approximately 25% of it being liquids which the company has increased markedly over the last three years. Still, with 75% of production being natural gas Chesapeake is one of the nation's top producers of the commodity. Per Fitch calculations, adjusted debt to production for 2013 was approximately $31,000 per boe of daily production, and adjusted debt to PD was approximately $11.40 for the year. Both metrics sequentially improved year over year. At year-end 2013 balance sheet debt was nearly $13 billion, and EBITDA improved to $5.2 billion from $3.9 billion in 2012.
Liquidity is provided for by the company's $4 billion secured revolver and expected proceeds from planned asset sales. Key covenants are primarily associated with the secured revolver and include maximum debt-to-book capitalization (70% covenant threshold) and maximum total debt-to-EBITDA. Maturities consist of approximately $1.6 billion in 2015 and $500 million in 2016. For 2014, Fitch's expectations are for Chesapeake to be free cash negative by approximately $1-1.5 billion which will be funded by planned asset sales. The trend in negative free cash flow has come down substantially compared to previous years.
Fitch currently rates Chesapeake as follows:
--Senior unsecured notes 'BB-';
--Senior secured revolving credit facility 'BBB-';
--Convertible preferred stock 'B''.
In addition, Fitch has assigned the following rating:
--$3 billion senior unsecured notes 'BB-' due 2019 and 2022.
The Rating Outlook is Stable.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
--Material progress in deleveraging the balance sheet relative to reserves and production;
--Cash flow generation leading to consistent and significant positive free cash flow generation.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
--Negative free cash flow leading to rising debt levels relative to reserves and production;
--Marked decrease in production levels or proved developed reserves relative to debt.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Relevant Research:
--'Corporate Rating Methodology' (Aug. 5, 2013);
--'Cash Flow Trends in the U.S. Energy Sector-Shareholder Activism Having an Impact' (Feb. 4, 2014);
--'Scenario Analysis: Lifting the U.S. Crude Export Ban' (Jan. 27, 2014);
--'2014 Outlook: North American Oil & Gas' (Dec. 12, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent
and Subsidiary Linkage
Cash Flow Trends in the U.S. Energy Sector (Shareholder Activism Having
Scenario Analysis: Lifting the Crude Export Ban (Overall Credit Impact
Limited but Varies by Industry)
2014 Outlook: North American Oil & Gas (Strong Oil Prices Continue to
Support Energy Complex)