Chris Lau
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Chris Lau in Value Stocks,

Chesapeake Energy Might Bottom at $2

As talk that Chesapeake Energy (CHK) facing liquidity issues dissipate, the energy company is busy managing its upcoming debt. Last year, the debt swap exercise proved unsuccessful. Few holders took up the company’s offer.

This time, CHK may get a better response from debt holders. If oil prices stabilize, LNG markets strengthen in Europe, and the company sells around $1 billion in assets, shareholders will be better off. For now, CHK’s $6 level in March will prove a level of resistance.

A 1.5 lien debt, which puts holders higher up in priority of who gets paid first (should CHK liquidate), is an attractive issuance. The near-term problem is oil dipping in just a few trading sessions. Expect CHK’s stock to react, with a possible re-test of the $2 - $2.25 share price bottom.

If that happens, it will be a good time to re-visit this stock.