Chesapeake Energy shares surge on amended credit deal

Shares of Chesapeake Energy surged more than 30 percent on Tuesday, a day after the natural gas producer said it was able to amend terms with its lenders and maintain a revolving credit facility at $4 billion.

A revolving credit facility allows companies to withdraw money from lenders when needed.

In a research note pm Monday, Citi Research analyst Marisa Moss said the amended credit facility, which matures in 2019, will give Chesapeake time to “ride out a low commodity price environment.” The company said lenders agreed to postpone the next evaluation until June 2017.

To maintain the $4 billion amount, Chesapeake said it had pledged “substantially all” of its gas fields, office buildings and derivatives contracts as collateral. The company also agreed to keep at least $500 million in liquidity. If it doesn’t meet certain terms by the end of the year, that amount would rise to $750 million.

Shares of Chesapeake Energy (ticker: CHK), based in Oklahoma City, rose $1.55, or about 35 percent, to $6.05 a share.

Chesapeake’s stock and bonds have been battered amid investor concern over the second-largest U.S. gas driller’s ability to shoulder a debt load three times larger than its market value. The company has slashed its obligations by more than half a billion dollars since the end of September, and raised twice as much cash as expected from fourth-quarter auctions of gas fields across several states.

At the same time, Chief Executive Officer Doug Lawler has taken advantage of the slide in the company’s own bond prices to snatch up the debt at steep discounts and last month exchanged 17.26 million new shares for about $73 million in senior notes. Even so, the company has more than $9 billion in debt, 13 of its 19 bonds trade at distressed levels and U.S. gas prices recently touched a 17-year low, according to data compiled by Bloomberg.

“They can continue as a going concern and don’t have to worry about an immediate credit event,” Robbert Van Batenberg, an analyst at Flow Traders US LLC in New York. “But once you get to that point, it tends to be kind of the end game.”

Chesapeake, second only to Irving-based Exxon Mobil in gas production from U.S. fields, bucked the trend among fellow American explorers that have seen their credit lines snipped in the face of crashing commodity markets and crippling debt loads. Citigroup credit analysts led by Marisa Moss had expected Chesapeake’s borrowing line to be cut by 20 percent. Drillers from Bill Barrett Corp. to EV Energy Partners have disclosed credit line reductions approaching 30 percent.

This article includes material from The Associated Press and Bloomberg News.

This story was originally published April 12, 2016 at 1:31 PM with the headline "Chesapeake Energy shares surge on amended credit deal."