Entering text into the input field will update the search result below

Chesapeake Bondholders Don't Share In The Oil Rally Enthusiasm

Edward Vranic, CFA profile picture
Edward Vranic, CFA


  • The price of oil has rallied this week, leading to bullish moves on energy stocks.
  • Chesapeake's bonds continue to sit at lows at around 5% of par, indicating that the negative near term future for the stock is getting more ominous.
  • Investors who are insistent on a turnaround for CHK should buy the bonds and sell the stock.

Over the past couple of weeks, I have written two articles on Chesapeake Energy Corporation (NASDAQ:CHK). In the first article, I predicted that Chesapeake's bond prices signaled the end is near for the stock. In the second article, I used the recent restructuring of Whiting Petroleum Corporation (WLL) as an example to show that even in the best case scenario, CHK stock was overvalued.

Oil has been in rally mode this week, propping up oil and gas peers and temporarily halting CHK's decline in stock price. However, Chesapeake's bond prices suggest that there is absolutely no reason to be bullish on CHK equity. My advice to investors who insist on speculating on a turnaround for the company remains the same. They should buy the bonds and sell the stock. The stock is nothing more than an expensive trading vehicle and an easy shorting opportunity upon any spike.

Data by YCharts

Bond prices sink amid bankruptcy filing

Hours after my second article was published, a report came out from Reuters stating that CHK was preparing a bankruptcy filing. Chesapeake held discussions with creditors about debtor-in-possession financing of up to $1 billion and is considering skipping out on a $192 million interest payment. This report resulted in the bonds cratering in price, with little recovery even as the price of oil has increased this week.

Source: Morningstar

All bonds are now trading well below 10% of par. Even the bonds maturing this year have fallen from approximately 20% of par to just over 5% of par, leading to ridiculous yields to maturity of over 3,000%. The potential debtor-in-possession financing is the main driver of this price decline. As outlined in my previous article, there is approximately $3 billion in debt between a term loan and a revolving credit facility in addition to the $6 billion face value worth of publicly traded bonds.

This article was written by

Edward Vranic, CFA profile picture
I am a private investor based out of Toronto, Canada and I have been investing since 2003. After 8 years in Corporate Finance with a Canadian Telecom company I have decided to dedicate myself full-time to the capital markets. I write on Seeking Alpha to demonstrate my financial analysis and writing skills across a variety of industries and to take advantage of any story-based trading opportunity that may arise. My passion and greatest depth of knowledge is on Canadian small cap stocks and I consider my blog posts to be some of my best work. I am interested in any freelance opportunities that may arise outside of Seeking Alpha on Canadian or American listed stocks.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.