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As Chesapeake (CHK) confirms its $3B bridge loan has turned into $4B, Sanford Bernstein notes if...

As Chesapeake (CHK) confirms its $3B bridge loan has turned into $4B, Sanford Bernstein notes if CHK’s debt pile amounts to more than 4X its trailing four quarters of EBITDA, it would trigger a cascading bond default. Given anticipated producing asset sales decreasing EBITDA, along with lower natural gas prices, "the ratio has the potential to approach, if not exceed" the threshold by Q3 or Q4.
Comments (38)
  • Mike Maher
    , contributor
    Comments (2724) | Send Message
     
    The debt load is too large, nat gas prices are too low, and management waited too long to act.
    15 May 2012, 05:32 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (3505) | Send Message
     
    management? what's that?
    15 May 2012, 07:26 PM Reply Like
  • Todd Johnson
    , contributor
    Comments (6954) | Send Message
     
    $CHK I'm sure things will sort themselves out. Afterall Aub is still in charge.....
    15 May 2012, 08:27 PM Reply Like
  • bigazul
    , contributor
    Comments (1058) | Send Message
     
    now-now, Todd.
    15 May 2012, 08:58 PM Reply Like
  • Todd Johnson
    , contributor
    Comments (6954) | Send Message
     
    Big - no sarcasm. ;)
    15 May 2012, 09:15 PM Reply Like
  • srspa77
    , contributor
    Comments (326) | Send Message
     
    Aubrey for Treasury Secretary??
    16 May 2012, 01:28 AM Reply Like
  • bigazul
    , contributor
    Comments (1058) | Send Message
     
    No, governor of California.
    16 May 2012, 07:44 AM Reply Like
  • Harry Johnson
    , contributor
    Comments (482) | Send Message
     
    Did somebody say a bridge to nowhere ?
    15 May 2012, 09:50 PM Reply Like
  • Tom in Texas
    , contributor
    Comments (358) | Send Message
     
    Todd Johnson on Stock Talk:

     

    $CHK Aub confirms his hedge fund is interested in $CHK shares if priced appropriately to nat gas prices.
    He is playing hardball...developing
    15 May 2012, 10:26 PM Reply Like
  • Todd Johnson
    , contributor
    Comments (6954) | Send Message
     
    Thanks Tom.Aub is one tough customer....
    15 May 2012, 10:33 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (3505) | Send Message
     
    There's a part of me that wishes I were that brazen.
    15 May 2012, 10:39 PM Reply Like
  • rjj1960
    , contributor
    Comments (1370) | Send Message
     
    Took this guy over 3 years to move from dry gas to liquids. How is it that he, Aubrey, is not out on the street. The man is a train wreck.
    15 May 2012, 10:41 PM Reply Like
  • The Geoffster
    , contributor
    Comments (4107) | Send Message
     
    I bought CHK at 19 and I'm suffering from an excess of gas.
    15 May 2012, 10:44 PM Reply Like
  • Micah
    , contributor
    Comments (483) | Send Message
     
    This stock must be sold without abandon. Hold dysfunctional management teams and their boards accountable for destruction of shareholder value.
    15 May 2012, 11:19 PM Reply Like
  • The_Hammer
    , contributor
    Comments (4284) | Send Message
     
    cascading bond default?

     

    each one of their individual bonds have covenants related to ebitda ratios?

     

    or does this just relate to the revolver and the recently issued bridge loan?
    15 May 2012, 11:51 PM Reply Like
  • X-terminator
    , contributor
    Comments (89) | Send Message
     
    Just ask the Fed.......Fair play!
    16 May 2012, 01:26 AM Reply Like
  • srspa77
    , contributor
    Comments (326) | Send Message
     
    Can someone tell me what happened to all the CHK pumpers that were everywhere the past 3 years? Where'd they go?
    16 May 2012, 01:27 AM Reply Like
  • wald22
    , contributor
    Comments (216) | Send Message
     
    1= CHK will most likely do a drill equipment IPO.
    2= CHK already knows that for shale acerage to command rich pricing, time value must be maximized with large capex drilling. It no longer can do that. Thus it is tearing up lease agreements. It no longer is honering many of its lease agreements. Nor is it making that public.
    3= It has one good oil field which I beleive they will sell next. But there is a problem. The company wants to sell that asset, but the sale would affect production cash flow in such a way that its debt covenants will push the loan into default. I believe Icahn can step in and solve that covenant probelm by paying that loan off for a fee.
    4= The drill equipment IPO company will then serve CHKM and CHKR TOT STO and others who have an interest in CHK. They in turn will get more ownership control of what they have a % in for a price.
    5= CHK has considerable real estate it can sell and that should give shareholders a few dollars per share as a token for being the proud owner of CHK, if if everything goes ok.
    6= However like in 2008 I beleive oil price will head south do to the economy falling apart. The entire commodity complex is presently being shorted big time. I see $50 oil in November and 0.60 natural gas price. I forsee dry gas drilling collapse. I see CHK not honering its land lease agreements. So all that acerage will simply go back to former lease owners.
    16 May 2012, 04:54 AM Reply Like
  • Burden
    , contributor
    Comments (149) | Send Message
     
    All good points. The question I have is, why would GS, and Jeffries give CHK an Unsecured loan of 4 Billion if they believed it was iminent that they would not pay it back? The terms of the loan are very attractive for the lenders, but if CHK defaults on their bonds, I believe that this 4 bil is lower on the ladder to the bonds. Would GS risk such a public failure? My guess is that GS thinks/knows that a rally in NG is coming and that that increase in price will enable CHK to sell of assets at better prices and survive. However, in the event that Bernanke steps back and lets deflation take hold, the previous poster could well be right on his target prices for oil and NG. I just don't think Bernanke will step back.
    16 May 2012, 07:23 AM Reply Like
  • Burden
    , contributor
    Comments (149) | Send Message
     
    Actually the loan is pari passu to senior notes. But even so, it seems that they took the extra billion due to increased demand, so if this debt is not higher up the ladder than senior notes, it would seem as if GS is jumping right into the terrible situation that this analyst warns about. Why would they do that? Perhaps they figure the equity will get wiped out and they and other debt holder will get the assets, but if the assets deteriorate enough to wipe out the equity, will the assets be worth the 4 bil?
    16 May 2012, 07:30 AM Reply Like
  • The_Hammer
    , contributor
    Comments (4284) | Send Message
     
    nat gas production year over year on a weekly basis is lower by about 2.1% so the falling dry gas rig count is starting to bite into production.
    also coal to nat gas conversion is consuming alot more natgas, but this needs to continue for months to chew up the overhang in storage
    16 May 2012, 07:44 AM Reply Like
  • wald22
    , contributor
    Comments (216) | Send Message
     
    I believe Bernanke has no choice but to step back and let deflation take place. Before the last great depression the central bank like now did a lot of printing, lending, borrowing only to get stuck with a lot of assets that got cheaper as time went buy. Then like now cash money went into hiding under bed mattresses and credit took its place. Credit only works as long as debt can expand. Then like now it can't. A good example of that is Greece. People there are moving into cash Euro's and US$'s big time. You can't get blood from a rock, thus Greek debt will have to be written off. Greece is simply not going to pay their debt, just like we can never pay our debt. They are not even going to renew it. The Euro can't afford to kick them out. In the same way the FED has stepped in to save CHKM and CHKR. Goldman Sucks is the tool the FED is using to salvage CHKM and CHKR. GS will do CHK's drilling equipment IPO, and will have a hand in the sale of the best oil part of CHK.
    16 May 2012, 12:21 PM Reply Like
  • Harry Johnson
    , contributor
    Comments (482) | Send Message
     
    Burden:

     

    Why would GS and Jeffries shell out $4 billion ? That is an easy one:
    First, it won't be their money, and second they will pocket about $200 million in fees. Remember, Goldman cooked the books for the Greeks so they could join the EU and only charged $300 million for that caper.
    16 May 2012, 02:49 PM Reply Like
  • wald22
    , contributor
    Comments (216) | Send Message
     
    Hopium attiction is good to a point, but reality is setting in. We have had QE2 and Operation Twist, which have lowered interest rates. But those rates are not helping the real economy. Elderly people have less interest income to spend. The only thing that is increasing is leveraged bets that banks use to increase reportable income that in most cases does not even exist. We like Greece have one option, and that option is to renounce the debt. And the best way to do that is simply take your money out of the bank. To have austerity is good, but to have austerity for the poor so the poor can better pay the rich will do nothing for the economy. Austerity policies to simply serve the banks, that is cut back our spending so more is available to pay the banks will do nothing to help the economy. CHK like the government needs to downseize its operation and debt. Instead its upseizing its debt load. Renegating on lease contracts is not going to help CHK. Neither is drilling new wells that are uneconomic. Before July, oil will hit $70. That is not a plus. Is there no wonder why ever more people in this world are voting for less austerity for themselves by simply removing their money from the financial markets and banks. The stock market has become a sink hole for your savings, yet it is way overpriced. So is CHK. The decimal point needs to be after the 1, not the 4.
    16 May 2012, 03:46 PM Reply Like
  • Harry Johnson
    , contributor
    Comments (482) | Send Message
     
    In addition to the stimulus plans not working because they stimulated the wrong actions (e.g.; commodity speculation), the drop in velocity trumped the increase in bank reserves.
    17 May 2012, 10:46 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (3505) | Send Message
     
    Harry, it's very difficult to evaluate the effectiveness of the stimulus. However, every quarter, the CBO does the best it can at exactly that and it regularly shows a significant positive impact from the stimulus in terms of both jobs added and GDP growth. If you're going to dispute the CBO's calculations, you need to show your work.
    17 May 2012, 11:10 AM Reply Like
  • wald22
    , contributor
    Comments (216) | Send Message
     
    We are stuck in a fiat system failure. that is affecting the whole globe. The fiat system of creditism is unsustainable and unconstitutional. Most of the world has reached its debt limit. Liquidating the debt structure is now in progress by means of default. People are starting to move the money out of the banks. Liquidating the debt will bring about liquidating the labor force, farmers, real estate prices, stock and bond values. It will purge the rottenness out of the system the hard way. It will force people to become more Amish like in the form of self sufficiency. The idea that we the people must spend less so more is available to make bank interest payments is STUPID. STUPID is as STUPID does. People are going to have to learn to work less for the banksters and work more towards self sufficiency. What bankers need is a bullet in the head. And what we the people need is Constitutional commodity money that backs itself, not creditism. CHK's weakness is like our weakness, is the lack of profitable production be it in whatever it may be. In the past CHK has been able to recapture a large portion of its agressive leashold spending through joint venture transactions that are incomplete. As it turns out they don't even want to complete it because they now see it is not profitable. This forces CHK to borrow (issue debt) to give them time to sell assets that are now actually falling in price. Selling their best oil play, which is the only thing they can sell at a profit at the moment is not going to help them switch form being a natural gas producer to an oil producer. It may give them some time to get out of the natural gas low price cycle. The question in my mind is this, CAN CHK adapt its horizontel gas know how to unconventional oil? Then the second question is, do they have that oil in the leases they hold? It wasn't long ago oil went from $147 to $35. I beleive oil will soon be below $70. I also beleive gas will go below a $1. With these kind of prices CHK will never be profitable by production. CHK is like a under water house owner. Like the under water home owner, they have to find a bigger fool with cash or bank credit that can be turned to cash. CHK shareholders and its partners are going to get liquidated big time. Most likely CHKM and CHKR will follow CHK.
    17 May 2012, 12:36 PM Reply Like
  • Harry Johnson
    , contributor
    Comments (482) | Send Message
     
    Non-Surfer (really ?)

     

    Plenty of studies out there by capable folks that conclude the GDP multiplier for federal, state and municipal spending is one or less; whereas, in the private sector it can be up to three. One of those folks is Christina Romer who was Obama's Chairman of the President's Council of Economic Advisors until she got tired of being ignored and went back to Berkeley.
    18 May 2012, 01:26 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (3505) | Send Message
     
    Yes, really Harry. Look it up. You're making a specious argument here because the stimulus wasn't federal spending in the sense that these sorts of studies look at. It wasn't the purchase of new fighter planes or research into the development of new bombs. It was a cash injection that put money directly into people's hands and therefore directly into the private sector.
    18 May 2012, 03:24 PM Reply Like
  • Harry Johnson
    , contributor
    Comments (482) | Send Message
     
    I'm not making an argument, just repeating a few things I have read, written by people who seem to know what they are talking about. Perhaps I'm not seeing the multiplier from that direct cash injection into people's hands. Maybe it is hiding behind the host of unemployed we still have, or the $3 Trillion of excess bank reserves created by the stimulus programs that sits idle and forces the thrifty to accept 1% or less on their savings.

     

    I recognize the dangers of acting on what others are saying when my intellect is insufficient to grasp the full extent of what they are advocating. I see the results of such actions demonstrated frequently in the ongoing transmogrifications enacted by Congress.

     

    P.S. The "really ?" meant are you really a non-surfer.
    19 May 2012, 10:31 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (3505) | Send Message
     
    "Perhaps I'm not seeing the multiplier from that direct cash injection into people's hands"

     

    The comparison between what we would have had w/o the stimulus and what we do have (with the stimulus) is a difficult one to make. It's not something you can "see" as you live your daily life because you don't have the alternate universe view needed for the comparison. The CBO has made extensive efforts to analyse the effects of the stimulus and they update that analysis every quarter. Their analysis shows a substantial improvement in unemployment and in GDP due to the stimulus. In other words, things would have been much worse w/o it.

     

    I actually think the CBO is UNDERestminating the effect of the stimulus. We came very close to having another great depression -- 30% unemployment, maybe even 50% unemployment given the political gridlock. It wasn't only the stimulus that prevented that. There were other actions too. But the stimulus was a significant part of what transitioned the country from freefall towards stasis and the beginnings of recovery. Even though it's rough, it could so very very easily have been many times worse than it is. Imagine an airplane with engine problems and stuck landing gear. You survive because the pilot manages to land the plane w/o it exploding into a fireball. Would you then spend the rest of the day complaining that it wasn't a smooth enough landing?
    19 May 2012, 12:46 PM Reply Like
  • Harry Johnson
    , contributor
    Comments (482) | Send Message
     
    Sorry you see me as a complainer and a purveyor of specious arguments. Perhaps I don't put enough trust in government reports, but I have trouble accepting some of the methods used for there compilation. For example, isn't it nonsense to stop counting people as unemployed if they give up and stop looking for a job and then treat that as a drop in unemployment ?

     

    I agree that had nothing been done, we would now be much worse off. I just think the government could do a whole lot better job than it has done. If this is all the fault of George Bush and the Republicans, then why didn't Obama and the Democrats reverse all those mistakes when they had the power to do so ? The first step in that direction would have been to put Glass-Steagall back on the books. Instead, many of the people who created the mess have moved from Wall Street into the government to fix things.

     

    As for your pilot metaphor, a good pilot wouldn't take a chance on a fireball. He or she would burn or dump the fuel and land with empty tanks. If there were sufficient fuel on board, the pilot could proceed to the nearest runway with foaming equipment, work to get the gear down while burning any remaining excess, and bring it in on the belly, satisfied that he or she had done everything possible to avoid a fire.

     

    The old Sears and Roebuck mail order catalogues labeled their merchandise "Good, Better and Best." Even if the government's performance has reached the level of Good, it is far from the Best that can be done. If that observation brands me a complainer, so be it.
    19 May 2012, 04:12 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (3505) | Send Message
     
    "isn't it nonsense"

     

    In the report I reviewed (probably still the most recent one), the CBO isn't looking at unemployment figures. They were looking at job creation figures. The problem I have with these sorts of armchair critiques is that people just sit around fabricating imaginary criticisms instead of actually looking at the report and doing a real analysis of their own. If you were doing the work of looking at specific things that are actually IN the CBO's analysis and discussing their validity, then we'd have something to discuss.

     

    Could it be better? Maybe. Probably. Gridlock in Washington limits what the gov't can do. But then that's how our system of government was designed. It's by design of the nation's founders that gov't can only do so much, even in a semi emergency. Some say that if the stimulus had been larger, for example, that it would have had a much bigger difference. I'm not convinced of that but I don't go around claiming to know that to be the case in the absence of actual substantive data and analysis.

     

    "If this is all the fault of George Bush and the Republicans"

     

    It's not. The financial crisis was a bi-partisan effort.
    19 May 2012, 05:59 PM Reply Like
  • Harry Johnson
    , contributor
    Comments (482) | Send Message
     
    Seems like you are saying we can only discuss the government statistics that you want to discuss; i.e.; those of the CBO. I agree they are probably the most reliable, but I don't think objectivity permits one to ignore other sources or infer that folks who do consult those sources "go around claiming to know that to be the case in the absence of actual substantive data and analysis."

     

    I have only one further question: If the present government is what the Nation's founders designed, why do the majority of people (according to various polls) think the government is on the wrong track as compared to 20 or 30 years ago ?
    20 May 2012, 04:03 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (3505) | Send Message
     
    "you are saying we can only discuss the government statistics that you want to discuss"

     

    Harry, on the contrary. You chose the topic by asserting that the stimulus had done nothing. You have offered zero substantiation for that assertion. I pointed you to the CBO's analyses that reach the opposite conclusion. You've not only failed to address even a single topic in those reports, you also haven't offered a single bit of data or analysis to support your completely baseless assertion.
    20 May 2012, 07:06 PM Reply Like
  • wald22
    , contributor
    Comments (216) | Send Message
     
    Saudi Arabia stimulus= 36,000 whatever their currency unit is = $10,000 per adult, who is capable to take care of her or himself in cash. 92% of that money came back in the form of taxes that very same year. USA stimulus= bail out the crooket banks who continue to take 100's of billions of all kinds of currency units that get siphoned off out of the world's economies via creditism and the derivative credit default swap casino to rob us blind. The cartel is without heart and its only purpose is to enrich themselves at the expense of the rest of us. So we enrich them by screwing us, which is not enough, then we bail them out on our credit they create out of nothing so they can lend us more credit they create out of nothing. Then they make more bad loans, securitize the bad loans, sell them to one another, create an enormous house of cards (ponzi scheme) that ends up turning the entire financial system toxic.That is not enough, so they place bets against bets placed on the bets made on the original bets. CHK lost $1.7B on such bets during the last two years. JPM lost $2B in 40 days and more then that during the last few days and they can't even close the trade.The American stimulus is shit. It's a loss of reputation for honorable dealing which will bring us unending humiliation. The coming legal and moral chaos will be appalling. We have about $1.3T in cash to pay off a known $16T debt wich is way over $100T if one had honest accounting. CHK has one good spot, the perinium or whatever it is called that I think will bring $7B. The rest they won't even get the money they have in it. Like the USA, CHK assets are way overstated (hyped) and their liabilities are way understated. We the people could solve our economic problems if each one of us responsible adult got $10,000 in cash free and clear and we spend it into circulation. The way it is now no money can enter into circulation unless it is a debt IOU.
    19 May 2012, 04:28 PM Reply Like
  • srspa77
    , contributor
    Comments (326) | Send Message
     
    I believe in Obama's economic policies. DOW 15000 by October.
    20 May 2012, 07:46 PM Reply Like
  • wald22
    , contributor
    Comments (216) | Send Message
     
    @srspa77- Lets hope you are right. After all the stimulus was done to bail out the crooket banks, who continue to take out 100's of billions be it in whatever currency and use it to place bets against the bets placed on the bets made on the original bet. DOW 7500 sometime this October and Dow 5000 next year's October. 10/4 should be the low dates.
    20 May 2012, 08:02 PM Reply Like
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