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MUFG Union Bank Agents Chesapeake Energy’s Facility Amendment

April 12, 2016, 07:28 AM
Filed Under: Energy

Chesapeake Energy Corporation announced it has amended its $4.0 billion secured revolving credit facility agreement maturing in 2019 with its bank syndicate group. Key attributes include:

  • Borrowing base reaffirmed at $4.0 billion, consistent with current availability
  • Next scheduled redetermination of borrowing base postponed until June 2017
  • Senior secured leverage ratio covenant relief granted until September 2017
  • Interest coverage ratio covenant reduced to 0.65x through March 2017

Following the recent redetermination review by its bank syndicate group, Chesapeake's senior secured revolving credit facility borrowing base was reaffirmed at $4.0 billion, consistent with current availability. In connection with the redetermination, Chesapeake agreed to pledge additional assets as collateral under the Credit Agreement. As part of the amendment, the next scheduled borrowing base redetermination review has been postponed, and the lenders have agreed not to exercise their interim redetermination right, in each case until June 2017. The amendment includes a collateral value coverage test, which may limit Chesapeake's borrowing capacity if its collateral coverage ratio falls below 1.25x, tested as of March 31, 2017. An SEC filing indicates that MUFG Union Bank is adminstrative agent on the amended facility.

The amendment provides temporary covenant relief, with the facility's senior secured leverage ratio suspended until September 2017, then reverting to 3.5x through December 2017 and decreasing to 3.0x thereafter. In addition, the amendment reduces the interest coverage ratio to 0.65x from 1.1x through March 2017, after which it will increase to 0.70x through June 2017, then reverting to 1.2x in September 2017 and to 1.25x thereafter. During the period in which the existing maintenance covenants are suspended, Chesapeake has agreed to maintain a minimum liquidity amount of $500 million at all times, increasing to $750 million if its collateral coverage ratio falls below 1.1x, tested as of December 31, 2016. The amendment also gives Chesapeake the ability to incur up to $2.5 billion of first lien indebtedness secured on a pari passu basis with the existing obligations under the Credit Agreement, subject to payment priority in favor of the existing lenders and subject to the other limitations on junior lien debt set out in the Credit Agreement.

Chesapeake Energy Corporation is the second-largest producer of natural gas and the 12th largest producer of oil and natural gas liquids in the U.S. Headquartered in Oklahoma City, the company's operations are focused on discovering and developing its large and geographically diverse resource base of unconventional oil and natural gas assets onshore in the U.S. The company also owns substantial marketing and compression businesses.

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