Chesapeake Energy (CHK) Stock Pops On Term Loan

Chesapeake Energy Corporation CHK Stock News

Chesapeake Energy Corporation (NYSE: CHK) is making a run for the top early on this morning, and for good reason. The company announced that it has move forward with a new term loan facility, setting its financial foundation on solid ground. As a result, the stock is trading on early gains of nearly 15%. Here’s what’s happening.

CHK Stock Gains After Announcing New Term Loan Facility

In a press release issued early this morning, Chesapeake Energy announced that it has engaged a slew of banks to assist with the arrangement of a secured first lien last out 4.5-year term loan facility.

The banks, including JPMorgan Chase, Morgan Stanley, Bank of America and MUFG have made up to $1.5 billion available to the company.

In the release, CHK said that it will use the net proceeds of the loan to finance a tender offer and consent solicitation for unsecured notes issued by BrazosValley Longhorn and Brazos Valley Longhorn Finance. Both of these are wholly owned subsidiaries of the company.

Moreover, CHK said that it will use the funds to fund the retirement of Bazos Valley’s existing secured revolving credit facility.

Overall, the company said that it expects that these transactions will improve the company’s financial flexibility and allow Bazos Valley and its subsidiaries to support current and future debt held by the company.

In the release, Chesapeake Energy said that the loan will be secured by the same collateral securing its existing credit facility. Importantly, the amounts borrowed under the new term loan facility will be unconditionally guaranteed on a joint and several basis by the company and its indirect wholly owned domestic subsidiaries.

Finally, CHK said that the ability to establish the new term loan facility and borrow thereunder will be subject to the receipt of commitments from lenders to provide the term loan facility, the negotiation and execution of definitive loan documents, the success of the consent solicitation and other customary closing conditions.

Why Investors Are So Excited

All in all, the news issued by Chesapeake Energy today proved to be overwhelmingly positive. There are several reasons that investors are excited here.

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First and foremost, access to $1.5 billion is a huge financial milestone. At the end of the day, these funds will provide the company with financial stabiity. This is exactly what investors have been looking for.

Let’s face it, Chesapeake Energy is currently operating at a loss. In order to sustain, and more importantly, grow, it has to spend money. Over time, this has caused CHK and its management to find itself stuck between a rock and a hard place financially.

Considering this, many have been wondering if the company would look for strategic alternatives or find itself forced to sell its assets or entire comapny under a bankruptcy. The access to funding announced today largely alleviates this risk. As such, investor excitement is high and CHK is running for the top.

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