Chesapeake Energy Corporation (NYSE: CHK)
Chesapeake Energy Corporation is having an incredibly strong trading session today, and for good reason. The company announced that it has come up with an agreement and secured a $1 billion loan. Today, we’ll talk about the details of the loan, how the stock reacted to the news, and what we can expect to see from CHK moving forward.
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CHK Announces $1 Billion Loan
When it comes to Chesapeake Energy, the big concern among investors is debt. The company has billions of dollars in debt with about $1.6 billion maturing by the end of this year. Nonetheless, earlier today, the company announced that it has come up with a solution, at least for the short term.
Early this morning, CHK announced that it has engaged Goldman Sachs Bank USA, Citigroup Global Markets, and MUFG to help in the arrangement of a secured 5-year loan. The loan will come to an aggregated principal amount of $1 billion. The company said that it would be using the money to buy back $500 million in convertible senior notes due between 2037 and 2038 as well as $500 million of non-convertible senior notes due between 2017 and 2023. CHK said that the loan will be secured by the same collateral that is securing the company’s revolving credit facility. In a statement, the company had the following to say with regard to the new loan:
“Chesapeake expects this financing and the tender offers to improve its financial flexibility as it will allow for the retirement of existing debt with upcoming maturities…”
How The Stock Reacted To The News
As investors, one of the first things that we learn is that the news moves the market. Any time positive news is released with regard to a publicly-traded company, we can expect to see gains in the value of the stock associated with the company as a result. In this case, the news of the new credit obtained by the company is being viewed as positive. After all, it will help the company to achieve a higher level of financial flexibility. As a result, we’re seeing gains in the value of CHK today. Currently (2:03), the stock is trading at $5.44 per share after a gain of $0.41 per share (8.27%) thus far today.
What We Can Expect To See Moving Forward
Moving forward, I have a relatively mixed opinion of what we can expect to see from CHK. In the short term, things are looking good. The company has, once again, secured further financing that will help to keep it afloat for the short term and improve its balance sheet. However, there are still some big concerns here. First and foremost, isn’t this move robbing Peter to pay Paul? While the company is showing that it’s capable of finding further financing, it’s also adding to the amount of overall debt that it carries, and that’s a bit scary.
At the end of the day, Chesapeake Energy is still in the same position that it was last week. Sure, financial flexibility is there. However, the company has billions of dollars worth of debt and continues to operate at a loss. So, the only option moving forward is more debt.
While I would love to say that I’m expecting for losses to subside soon, that simply isn’t the case. CHK is a company that is focused on the production of oil and natural gas. With oil prices incredibly low and no solution to the supply glut in sight, reaching profitability is nearly impossible for the company. All in all, I’m expecting to see long-run declines on the stock. So, if you decide to get involved now, make sure to trade with caution.
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What Do You Think?
Where do you think CHK is headed moving forward? Join the discussion at TalkTRENDZ!
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