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Chesapeake Energy Has The Liquidity It Needs

Summary

Lackluster energy prices are forcing Chesapeake Energy to lay off 740 workers, equal to 15% of its workforce, as it continues its cost cutting crusade.

Chesapeake Energy's $4 billion revolving credit facility's borrowing base was reaffirmed but with new covenants as it became secured.

$396 million in debt might be redeemed this November, but Chesapeake Energy Corporation appears to have planned ahead.

Over the past two weeks, Chesapeake Energy Corporation (NYSE:CHK) has made three announcements worth taking note of a month before the company posts its Q3 2015 results.

Due to the carnage being dealt by low energy prices, Chesapeake Energy is slimming down its total headcount by 15%, as the company lays off 740 workers. Those layoffs will be felt across America as Chesapeake is forced to shed its growth ambitions.

Chesapeake Energy expects to take a one-time $55.5 million charge in Q3 2015 due to the restructuring. Like practically all upstream players, Chesapeake isn't generating enough cash flow to cover its expenditures, something management hopes to change in part through continued cost reduction efforts.

Liquidity remains

Another important development is that Chesapeake Energy's undrawn $4 billion revolving credit line's borrowing base that matures in 2019 remains unchanged. Part of the redetermination process included Chesapeake switching from an unsecured to a secured credit facility, changing up its debt covenants. Two of the new covenants include having a 3.5x senior secured leverage ratio [falls to 3.0x by 2017] and an interest coverage ratio of 1.1x [rises to 1.25x by 2017], while the total leverage ratio financial covenant of 4.0x trailing 12-month EBITDA has been scrapped.

Chesapeake also has the option to issue out $2 billion of junior debt...


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