Chesapeake Energy (CHK) Stock Higher, Swaps Debt for Equity
NEW YORK (TheStreet) -- Chesapeake Energy (CHK) - Get Report stock is rising by 1.38% to $4.42 in mid-morning trading on Thursday, as the natural gas producer will swap 4.1% of its shares for outstanding debt in an effort to diminish its debt load amid lower commodity prices.
The company will issue 28.1 million shares, worth $122.5 million based on Wednesday's closing price, in exchange for $153 million in debt, the Wall Street Journal reports.
Chesapeake's debt load is currently about $9 billion. Earlier this year, the company hired legal firm Kirkland & Ellis to help improve its balance sheet.
The bondholders' agreement to make the swap indicates that the bondholders might not view Chesapeake as headed toward bankruptcy, the Journal notes. Should a bankruptcy occur, bondholders would be paid before stockholders.
Chesapeake has a significant amount of debt due starting in 2017, and "they're starting to find creative ways to ease that wall of maturities coming," Tim Revzan, analyst at CRT Sterne Agee, told the Journal. "It's not a game changer," but the move shows that Chesapeake is willing to explore options for reducing debt while waiting for gas prices to rally, Mr. Revzan said.
Separately, TheStreet Ratings team rates the stock as a "sell" with a ratings score of D+.
Chesapeake's weaknesses include its generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.
You can view the full analysis from the report here: CHK
TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this article's author.
