Chesapeake Energy (NYSE:CHK) today announced a significant step away from the financial cliff. The day began with a debt agreement announcement followed by offers to exchange debt along with a conclusion that the company is doing what has to be done. Debt amounts should decline enough to make an actual "going concern" in the audited annual report a moot point. Covenant restrictions that were a challenge will be replaced by something a little more flexible.
Speculative investments such as this one often do not allow for any missteps. Those missteps also include softer than expected commodity pricing. However, this management appears to be aggressively forcing down the debt load as much as possible. Considerable market consideration is required. But this management appears to have learned some lessons about reorganizing a company that others missed.
Many of us wrote articles about Halcon Resources (HKRS) and SandRidge Energy (SD) (among others) before they went bankrupt. There was a spirited discussion about who made the best deal for shareholders. However, all of us missed the fact that these distressed companies did not do nearly enough of those deals to ensure the survival of the company. Therefore debt did not decline enough so when the 2016 commodity price lows arrived, these companies all threw in the towel and filed bankruptcy.
Chesapeake Energy management appears to have a solid plan in mind to reduce the debt. More importantly, this management appears to be ready to do enough deals to ensure the long-term survival of the company. Rumors have been making the rounds that Comstock (CRK) has an interest in the Haynesville assets of Chesapeake Energy. However, Comstock is a vulture investor. There is absolutely no way that Chesapeake Energy would negotiate with Comstock from a weak position. No one really talked about today's actions. But the debt announcements
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