Chesapeake Energy Corp said it had received a $3 billion loan from Goldman Sachs and Jeffries Group that will give it breathing room to sell assets and close a funding gap this year.
The unsecured loan will be used to repay money borrowed under its existing $4 billion revolving credit facility, Chesapeake said.
“This short-term loan from Goldman and Jefferies provides us with significant additional financial flexibility as we execute our asset sales during the remainder of 2012,” Chief Executive Aubrey McClendon said in a statement.
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This is typical of CHK. Borrow more money at higher rates to repay previous loans. They’ve kept the game going for awhile but eventually it’s going to go tits up.
I am watching from the sidelines in morbid fascination.
Hmmmm… a few more specifics:
1) The previous revolver had a $4 bln limit at LIBOR + 1.5 – 2.25% depending on CHK’s credit rating.
2) Let’s say CHK had a shitty credit rating so interest is LIBOR + 2.25%. I’ll use an estimate of 0.5% for LIBOR so interest rate payable by CHK is 2.75%.
3) As of Dec 31, they had $1,719 drawn on the revolver – so interest on that amount per annum would be $47.2 mln.
4) Today’s loan for $3 bln at 8.5% gives a yearly interest payment of $255 mln.
Basically their debt servicing costs for this one portion of their borrowing just went up 5.4x.
Sounds like they are pretty desperate.
Yep. It sounds like a ponzi scheme to me.
CHK is a sub-prime borrower and the collapse in natural gas prices is analogous to interest rate hikes on mortgages.
Wait until they finally have to fess up to the reserves impairments. Then shit will really hit the fan.