It would be a great if they were a tech company and intellectual property was a critical part of their business.Originally Posted by Midtowner
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Re: Chesapeake Business Practices
It would be a great if they were a tech company and intellectual property was a critical part of their business.
Re: Chesapeake Business Practices
The fact that they are unable to sell assets to reduce debt -- their stated corporate plan -- due to their byzantine financial structure is worrisome indeed. Essentially, the company is facing a liquidity crisis, and it appears they have been engaged in raising revenue through the sale of derivatives and other "off balance sheet" financing, and they are locked in to future drilling agreements just to satisfy this debt. This is why people use the Enron comparisons. They need to borrow to pay for the other borrowing they've done, and they're unable to do so. Meanwhile, their stock price has been hammered. This is a spiraling mess, and Aubrey McClendon and his cozy board members are to blame.
I'm beginning to think the only prayer this company has of survival is to sell, and I'm guessing that's what will happen. We've seen this movie before and we know how it ends. This could be very bad news for OKC.
Participating Member
Re: Chesapeake Business Practices
CHK has always claimed that their business dealings don't conceal anything improper, they're just very complicated and beyond what the average person can understand. That may be so, but the truly smart people who have provided prior financing are now either withholding funds or offering it at very high rates - 8.50% was Friday's rate for $3.0 billion in unsecured financing.
Participating Member
Re: Chesapeake Business Practices
Such a cop out. They make it sound like they reinvented basic arithmetic. Maybe a bank can get away using that excuss, but an energy company can't.
Participating Member
Re: Chesapeake Business Practices
McClendon: Chesapeake will raise needed money
Chesapeake Energy Corp. CEO Aubrey McClendon said Monday the company will be able to complete asset sales to fund its current drilling plans.
By Adam Wilmoth | Published: May 14, 2012 Oklahoman
Chesapeake Energy Corp. will have the cash it needs to fund its current drilling budget and complete its transition to oil production by 2014, CEO Aubrey McClendon said in a conference call Monday morning. McClendon clarified a series of announcements late Friday that startled investors and caused the company's stock price to lose more than $1 billion in value in about 45 minutes.
Chesapeake filed its first quarter report Friday, a day after it had been due. That evening, the company announced it had agreed to a $3 billion unsecured loan.
“The Goldman and Jeffries term loan will provide us with greatly enhanced financial flexibility,” McClendon said Monday.
McClendon also said the company has had strong interest in its planned asset sales and has had to cut off the number of buyers interested in Chesapeake's Permian Basin holdings in the “double digits.”
“We expect those transactions to close in the third quarter, and we will use the proceeds from those transactions to pay off the Goldman and Jeffries loan,” McClendon said. “We also plan to sell sufficient noncore assets in 2013 to make sure we are well-funded next year as we complete our natural gas-to-liquids transition and reach our goal of being cash-flow positive in 2014.”
Chesapeake has chosen to delay or cancel its planned volumetric production payment for the Eagle Ford shale, instead opting to go with the $3 billion loan.
“We decided this unsecured $3 billion term loan, which will provide a long runway into 2012 and allows us to complete our asset monetization from a position of strength was the right way to go,” McClendon said. “That's what we've done. We've applied the proceeds to our (revolving credit facility). We have a lot of room. We have a lot of things planned for June. We have things planed in the third quarter. We'll just play it on out.”
McClendon and Chief Financial Officer Nick Dell'Osso spent much of the 67-minute call detailing the strengths of the embattled company.
McClendon pointed out that even without the assets the company is trying to sell, Chesapeake owns “assets easily identifiable as being worth at least $50 billion to $60 billion” even though the company's enterprise value is now about half that.
McClendon also sought to reassure investors of his personal involvement in the company's transition and recovery.
“There could be no CEO in America today more determined and motivated than I am to deliver the value of its company's assets to its shareholders,” McClendon said. “I do understand fully where we are, where we have been and also where we are going. I am 100 percent confident that our asset harvest strategy will deliver great value to Chesapeake investors in the quarters and years ahead.”
McClendon also addressed reports that activist investor Carl Icahn may be buying a significant stake in the company.
“I wouldn't be surprised if Carl became a shareholder,” McClendon said. “He did in 2010, and within six months the price went up. If he comes in again, I'm pretty confident he will make a lot of money.”
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Re: Chesapeake Business Practices
From WSJ 5/14
And here we go.In the call, Mr. McClendon reiterated that Chesapeake, which grew rapidly by throwing armies of so called land men into emerging oil and gas fields, now intends to go into "asset harvest" mode and concentrate on producing from the assets it already owns. A sharp reduction in its lease-seeking workforce would enable it to save $350 million in expenses, he said.
As always, employees and contractors are the first to go. I know a lot of these folks. There's a good chance they can find other work, but it probably won't be in OK.
Also, what good is "asset harvest mode" if the assets are already leveraged to the hilt? Why in the world did this company utilize derivatives as a financing vehicle?
For those that don't know: derivatives = disaster
After reading various articles over the weekend (including the Oklahoman), it seems I'm not the only person saying the situation is very 'Enronish'.
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Re: Chesapeake Business Practices
Boomer, I don't know if you've followed posts here long enought to know this. Steve with the Oklahoman has requested that if we cite their stories we provide a link with maybe a short snipit instead of giving the entire article here.
This is the newest update with McClendon commenting on the possible involvement of Carl Icahn.
http://newsok.com/mcclendon-activist...rticle/3675588
Participating Member
Re: Chesapeake Business Practices
Chesapeake increases bridge loan to $4B vs $3B -- CHK falls -6%
05/15 08:39 AM
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By Smita Madhur
NEW YORK, May 15 (RLPC) - Chesapeake Energy Corp has upsized its bridge loan to $4 billion from $3 billion, sources told Thomson Reuters Loan Pricing Corp on Tuesday.
The issuer has also tightened the discount at which it is offering to price the loan to 97 cents on the dollar from initial guidance of 96 cents on the dollar.
Chesapeake is said to have netted commitments of around $12 billion, mainly from high yield bond accounts and hedge funds. Books close on the loan at 10 a.m.
The loan, which is led by Goldman Sachs and Jefferies, is talked at a rate of 700bp over Libor with a 1.5 percent Libor floor.
Proceeds from the loan are to repay borrowings under the company's existing revolving credit facility. The new facility ranks pari passu to Chesapeake's outstanding senior notes. It is set to mature on Dec. 2, 2017.
Chesapeake's loan has drawn strong interest from investors looking to earn a rich yield. Hedge funds, in particular, are believed to be keen takers for the loan.
"I like it because of the near-term paydown," said a loan investor.
But loan investors with lower risk appetites have been quick to point out their perceived pitfalls of the loan.
The most notable criticism is that the bridge loan is unsecured and the company will still have liquidity and covenant issues.
"In a bankruptcy, we would be pari passu to at least $9.5 million of senior bonds," said an investor who turned the deal down.
He added that the company's EBITDAX is expected to decline 40 percent this year due to low gas prices and the company's lack of hedging. Meanwhile, total debt is expected to increase from $10.6 billion in 2011 to $21.9 billion in 2012, he said.
"They are still spending aggressively despite the lack of liquidity. In 2012, they plan to spend $12.5 billion in capex compared to $3.2 billion in EBITDA," he added.
During the remainder of the year, Chesapeake plans to complete asset sales totaling $9-11.5 billion and intends to use a portion of the proceeds from these asset sales to repay the bridge loan. If the asset sale does not fully repay the loan, pricing steps up to 800bp over Libor.
Additionally, if the loan is not fully repaid by Jan. 1, 2013, pricing steps to 1,000bp over Libor with a Treasuries plus 50 make-whole provision. The provision benefits investors and creates an incentive to the issuer to pay down the loan beforehand.
Chesapeake has received strong interest from prospective buyers of its Permian Basin asset-sales process and its Mississippi Lime joint venture process and the company expects to complete these two transactions in the third quarter of 2012, the issuer said in a press release earlier.
Beginning on May 11, 2013, lenders will have the option to exchange their loans for 11.5 percent notes.
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Re: Chesapeake Business Practices
S&P Cuts Chesapeake's Credit Rating Further Into Junk On Funding Needs 05/15 08:57 AM
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DOW JONES NEWSWIRES
Standard & Poor's Ratings Services moved Chesapeake Energy Corp.'s rating a step further into junk territory, citing revelations of potential conflicts of interest by Chairman and Chief Executive Aubrey K. McClendon, revised production expectations and higher funding needs.
Reports last month suggested McClendon borrowed as much as $1.1 billion over the last three years, pledging some of the company's oil and gas wells as collateral. Chesapeake initially rebuffed the notion that its CEO's borrowing against some of its assets raised a conflict of interest. But earlier this month, Chesapeake's board and McClendon agreed to terminate the controversial contract 18 months before it had been scheduled to end.
S&P lowered its ratings on Chesapeake Energy a notch to double-B-minus from double-B, leaving it three steps below investment grade. The outlook is negative.
"The downgrade reflects mounting turmoil stemming from revelations that underscore shortcomings in Chesapeake's corporate governance practices, covenant concerns, and the likelihood Chesapeake will face an even wider gap between its operating cash flow and planned capital expenditures than we had previously anticipated," said credit analyst Scott Sprinzen.
The ratings company said the recent turmoil could hamper Chesapeake's ability to meet its external funding requirements amid weak operating cash flow and aggressive ongoing capital spending.
Chesapeake recently reported its first-quarter loss narrowed as the natural- gas producer reported a smaller derivative loss from the year-ago period and as production increased. But company has said it expects a significant decrease from the first-quarter's peak capital expenditure levels during the remainder of 2012 and in 2013 as its further reduces drilling activity in dry natural gas plays and reduce spending on new leasehold.
Last week, Moody's Investors Service lowered its outlook on Chesapeake to negative from stable, saying the company's recent operating results revealed a large capital spending funding gap this year. Moody's still rates Chesapeake at Ba2, two steps into junk territory.
Participating Member
Re: Chesapeake Business Practices
CHK bond prices are not being as widely-reported, but are falling in value as expected. See also a loan covenant saying that the interest rate jumps from 8.5% to 11.5% if no repaid this year (I don't understand why they'd trade 2.75% debt for 8.5% debt, which will rise to 11.5% in seven months). Excerpted from a Monday evening WSJ story:
Chesapeake's most-traded bond, due in 2020, fell 5% to 91.64 cents on the dollar, according to pricing service Benchmark Solutions. About $850 million of the oil-and-gas driller's debt changed hands, accounting for 10% of all corporate bonds traded, according to MarketAxess.
Concerns about the possibility of default rose—the cost of insuring $10 million of Chesapeake bonds for one year against a potential default jumped by 36% to $727,000. Ratings agencies have assigned the company's debt double-B ratings, below investment grade, and last week Moody's Investors Service lowered the outlook to negative.
But the flexibility doesn't come cheaply. The unsecured loan carries an initial interest rate of 8.5% that increases to 11.5% if it isn't repaid by the end of the year. Chesapeake will use the proceeds to pay down the balance on its credit line; the company said Monday it has drawn down more than $3 billion on the line, which carries a 2.75% interest rate. So the new loan will increase its costs by about $173 million, and far more if the rate rises next year.
Owner / Administrator
Re: Chesapeake Business Practices
Stock is down well below $15 thus far today.
You can't imagine natural gas prices coming up much any time soon, especially with the summer months looming.
Perhaps if they actually complete some big asset sales they may finally see a bit of an up-turn.
Participating Member
Re: Chesapeake Business Practices
Pricey Chesapeake medicine highlights its sickness
By Christopher Swann and Robert Cyran
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
Pricey medicine can help. But in Chesapeake Energy’s case, it shows how sick the company is. The embattled energy firm is borrowing $3 billion at 8.5 percent to repay a loan whose terms might otherwise prevent asset sales. This buys time. But it makes even more obvious Chesapeake’s unsustainable reliance on selling assets to fund its persistent cash drain.
Chesapeake, America’s second-largest natural gas producer, has been cash-flow negative for a decade. Fitch Ratings reckons it faces a $10 billion shortfall this year. Aubrey McClendon, the chief executive now beset by questions over financial conflicts of interest, recently sounded characteristically confident that the gap could be bridged by asset sales. The company is targeting up to $14 billion of them this year.
But the firm’s quarterly filing with regulators on Friday – curiously delayed – painted a less optimistic picture. Chesapeake said it might have to delay and rejig asset sales to avoid flogging off assets needed as collateral or cutting cash flow below the level required by its debt covenants. The shares slumped 14 percent, and have lost about half their value in the past year.
The main stumbling block appeared to be the firm’s $4 billion revolving credit facility. The new, much more expensive loan from Goldman Sachs and Jefferies unveiled later on Friday will repay that, easing concerns that a cash flow squeeze could force more asset sales only to have lenders demand repayment, creating a fresh cash deficit.
But it’s a temporary reprieve. Chesapeake still needs to reduce its debt and wring more dollars from its wells. Selling choice oil assets while gas properties suffer with ultra-low prices only whittles away further at the company’s long-term earning power.
And McClendon’s credibility is diminishing fast. Unsavory revelations about his dealings and the company’s governance, Chesapeake’s complexity and off-balance sheet obligations, and tough gas market conditions have hammered the share price and the company’s credit. McClendon has convened a conference call on Monday, less than two weeks after the last telephonic gathering. Analysts may not cut him the same slack this time. The expensive injection of new debt makes Chesapeake’s illness look worse, not better.
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Re: Chesapeake Business Practices
Analysis: Sharks circle McClendon's Chesapeake
By Anna Driver and Carrick Mollenkamp
HOUSTON/NEW YORK | Mon May 14, 2012 6:15pm EDT
HOUSTON/NEW YORK (Reuters) - Chesapeake Energy Corp's increasing shift from bank loans to costly funding is raising fresh questions about how long the spigot of cash will remain open and whether the company can sell enough assets quickly enough to pay for day-to-day operations.
The company's problems were brought into sharp focus Monday when CEO Aubrey McClendon, who has a reputation for scrambling to close financing deals, told skeptical stock and bond holders how his company will use a loan from Jefferies & Co. and Goldman Sachs to pay down a $4 billion loan commitment from banks.
While McClendon expressed confidence Chesapeake can find buyers for assets, the $3 billion loan announced on Friday evening was a sign that potential bidders were taking advantage of the company's weakening liquidity and offering low-ball bids for assets.
"The way I look at is, I know they have some desirable assets," Phil Weiss, analyst at Argus Research, said. "At some point, doesn't the buyer on the other side of the table say 'this company is in trouble, I'm going to hold out for better?'"
The company's shares fell nearly 14 percent on Friday after Chesapeake said in a quarterly filing it would delay or cancel a production deal on oil-rich acreage in South Texas, a transaction that would have brought in $1 billion for the cash-starved company.
Seeking to reassure investors, the Oklahoma City, Oklahoma company said on Monday it is on track to close deals that will bring up to $11.5 billion this year, funds that are essential to closing a gap of around $9 billion. Shares closed up nearly 5 percent on Monday, but are down over 30 percent for the year.
While the loan provides some short-term relief, worries remain. Bond investors are nervous not only about future asset sales, which are effectively required by the new loan, but also about other new loans that may become secured ahead of the bonds, according to Alexander Diaz-Matos of New York credit-research firm Covenant Review LLC.
"I see this term loan today and I worry what is the next step," said Diaz-Matos, a lawyer and expert in bond covenants. "The loan has a blanket protection against future secured debt," Diaz-Matos said, noting that is the "top-line concern" for bond investors, "who don't have meaningful protection against secured loans."
"After reviewing Friday's 10-Q, we believe the company's financial footing has further deteriorated," Sterne Agee analyst Tim Rezvan told his clients on Monday, noting the 5-year loan's pricey 8.75 percent interest rate signaled desperation for cash.
Trading in Chesapeake debt securities was active with bonds maturing in 2020 being quoted around 91.50 cents and 92.50 cents on the dollar. On Friday, those bonds closed at 93.50 cents on the dollar, but not before starting the day around 97 cents on the dollar.
Investors increasingly are betting that Chesapeake's stock will fall. Those investors, known as short sellers, seek to profit when they borrow shares and then sell them in the hope of buying them back at a lower price for a profit.
The percentage of shares outstanding on loan, which indicates the shares are being loaned to short sellers, has risen to 12.5 percent of shares outstanding from 3.3 percent at the beginning of the year, according to Markit Group.
Another indicator is the cost of insuring Chesapeake's debt against potential default, which rose to its highest level in more than a year. Five-year credit default swaps widened by 52 basis points to about 804 basis points. That means it costs $804,000 a year for five years to insure $10 million of debt.
CDS prices have climbed more than 45 percent in the past 50 days, signaling sharply rising concerns about the company's ability to service its debt.
Still, some noted McClendon's past fund-raising prowess. "About the only thing you can say about Aubrey is he really knows how to raise money," Mike Breard, oil analyst with Hodges Capital in Dallas, said.
TAPPED OUT?
Chesapeake's recent misfortunes, which include Reuters' revelation that McClendon has arranged to borrow more than $1 billion against well interests granted to him as a company perk and resulting regulatory probes, may give buyers an upper hand, analysts and investment bankers said.
The company's major asset currently on the market is its 1.5 million acres of lease holdings in the oil-rich Permian basin, which has become one of the hottest exploration regions in North America in recent years.
It has also said it plans to find a joint venture partner in another liquids-rich region, the Mississippi Lime basin. It said it expects to close both deals in the third quarter.
"All of the divestitures are at risk," said one investment banker who spoke on the condition of anonymity. "They're all challenged. If you're a buyer and you smell blood would you give full value?"
McClendon said in a conference call on Monday that the company opened its data room for the Permian basin acreage last week, and three possible buyers have already looked at the information. He said more than 10 companies have expressed interest in the assets.
Acreage in the Permian basin has become highly sought after in recent years, with deals bringing in as much as $17,000 an acre (0.4 hectare) for assets believed to be particularly oil heavy.
While Chesapeake has one of the largest land positions in the basin, bankers said some buyers were worried that the company's lease holdings in the region are too gas heavy and spread out to fetch premium prices.
Chesapeake is hoping to bring in around $5 billion from the sale, according to two investment bankers working in the industry. But bankers said the company may have trouble reaching that number.
"It's the most attractive asset on the face of it, and people are looking at it and saying, 'We're not sure how good it is, we're not sure if we're really interested,'" another banker said. "It will be a reasonable process. This is a core area for a lot of people. But if I were a buyer I'd be looking at it and saying this is a seller who needs to sell."
Companies have not yet submitted bids for the assets. Still, given the price tag and that buyers may have to invest new capital in the properties to keep developing them, bids are likely to come from only large oil and gas companies, like Occidental Petroleum, Apache Corp and Marathon Oil.
Chesapeake has about 2 million acres in the Mississippi Line, a formation in northern Oklahoma and Kansas that contains natural gas and oil.
One challenge facing Chesapeake's Mississippi Lime JV has been that some of its previous partnerships -- especially in so-called dry gas regions -- have turned sour.
For instance, Chesapeake signed a deal to sell 25 percent of its Fayetteville shale acreage to BP Plc in 2008. While Chesapeake later sold out of its side in the partnership, BP took a $393 million write down on the value of the assets in 2011.
"It's been a pretty unsuccessful adventure for guys," one investment banker said. "It accrues more value for Chesapeake than for its partners, so a lot of guys are reluctant to go into a JV with him."
Participating Member
Re: Chesapeake Business Practices
Chesapeake shares drop as loan increased to $4 billion
Tue May 15, 2012 12:20pm EDT
(Reuters) - Chesapeake Energy Corp shares dropped as much as 6.5 percent early on Tuesday after sources said the natural gas producer had increased a new bridge loan to $4 billion from $3 billion.
The company, which faces a funding shortfall of about $10 billion this year, said on Friday that Goldman Sachs and Jefferies Group would provide it with $3 billion.
Chesapeake's cash flows have shrunk as natural gas prices slumped to their lowest levels in a decade, putting pressure on the second-largest U.S. producer of the fuel to raise money.
Corporate governance concerns have also weighed on Chesapeake's shares since Reuters reported last month that Chief Executive Officer Aubrey McClendon had borrowed at least $1.1 billion against his personal stakes in the company's wells from lenders who also had dealings with Chesapeake.
The new loan from Goldman and Jefferies was designed to give the company more breathing room to sell assets in two U.S. oil fields. Chesapeake has said it will sell those assets in the third quarter.
Also on Tuesday, ratings agency Standard & Poor's said it had cut Chesapeake's credit rating to "BB-" from "BB," one notch lower into noninvestment, or "junk," status.
The new unsecured bridge loan will replace an existing $4 billion debt facility. Company executives said on Monday they had drawn more than $3 billion of that existing debt line.
"If you were skyrocketing toward that $4 billion ceiling of yours, $3 billion probably wouldn't cut it," said oil analyst Mark Hanson of Morningstar in Chicago.
"I guess it's not surprising that they would increase the amount of flexibility that they needed, given their cash burn," Hanson said, which estimated it at $12.5 million a day.
Funding need for the company are likely to be higher over the next two years than previously expected, according to S&P credit analyst Scott Sprinzer, who described Chesapeake's liquidity as "less than adequate" in a statement.
Shares of Chesapeake were down 4.8 percent at $14.77 in morning trading after falling as low as $14.52 earlier in the day.
Participating Member
Re: Chesapeake Business Practices
CNBC has mentioned the Thunder a couple of times recently (on-air today):
http://m.cnbc.com/us_news/47417557
Has Chesapeake’s Buying Of Thunder Tickets Inflated The Market?
CNBC.com | May 14, 2012 | 04:18 PM EDT
As the Oklahoma City Thunder gets ready to take on the Los Angeles Lakers in the Western Conference semifinals tonight, there’s an off-the-court distraction that could impact the team’s business.
Chesapeake Energy [ CHK 14.542 -0.978 (-6.30%) ] CEO Aubrey McClendon, who owns 19.2 percent of the Thunder, has been under fire in recent weeks for admitting to his participation in a program that enabled him to buy a personal stake in every well the company drilled.
This, along with pushing the company’s debt up to a reported $15.6 billion and running a hedge fund on the side, resulted in the company agreeing to terminate the program and forcing McClendon to relinquish his chairman title.
So why does this have any impact on Kevin Durant, Russell Westbrook and James Harden?
Well, it’s not only because McClendon only owns a fifth of the team and Chesapeake is believed to be the single largest corporate partner of the team, it’s also because Chesapeake has been responsible for a part of the team’s ticket revenue.
Oklahoma City has surprisingly turned into one of the hottest tickets in the league even though it isn’t exactly a hotbed for big money. One of those reasons is that Chesapeake, one of two Fortune 500 companies based there, has bought up a significant amount of tickets. So is it possible that Chesapeake has inflated the marketplace for Thunder tickets, now well known as one of the best margin mark-ups on the secondary market in the NBA?
The company disclosed in its proxy statement filed last week that it bought $1.4 million in playoff tickets last year and $3.2 million worth of regular season tickets this year. That’s roughly the equivalent of 500 season tickets in prime locations throughout the arena or 2.8 percent of the arena's capacity.
Chesapeake Energy spokesperson Lindsay McIntyre did not answer specific questions about the ticket distribution or where the seats are located, telling CNBC, "The information in the proxy is our full comment at this time."
While Oklahoma City does have a season ticket waiting list, the possibility of Chesapeake buying fewer seats would have more of an impact if they are the most expensive seats in the arena. McClendon is known to sit courtside with the team’s managing partner Clay Bennett for every game.
The Thunder would not disclose to CNBC where Chesapeake’s tickets are located, with team spokesman Dan Mahoney only saying that “Chesapeake is a great partner.”
Patrick Ryan, co-owner of Houston-based sports ticket brokerage The Ticket Experience, found it strange when the Thunder suddenly stopped calling ticket brokers after the 2009-10 season.
“The Thunder became more difficult to work with and they no longer wanted to sell tickets to brokers despite having been aggressive cold callers in the past,” Ryan said. “This was suspicious since many of their locations weren’t profitable.”
After losing money on Thunder tickets in premium locations for the 2009-10 season, Ryan released his seats.
“It is that much more curious this year and last year to see their premium seats being valued so much on the secondary market,” Ryan said. “Yes, teams can turn things around but not to the degree the Thunder have. It’s the fact that there is zero supply on the (secondary) market. I suspect that is because a large amount of inventory is being held by Chesapeake.”
One Thunder insider, who preferred to remain anonymous, said that Chesapeake’s involvement with the Thunder isn’t necessarily bad business.
“There’s one pro franchise in Oklahoma City, you’d think that they’d invest in a bunch of tickets and suites. It makes sense. The real question is, how many tickets do they really need?”
Last July, Chesapeake agreed to a 12-year arena naming rights deal that the company said would start with a $2.9 million payment for the 11-12 season and end with a $4.1 million payment in 2023. Due to a lockout credit, the Thunder only collected $2.42 million this year from the company for the rights for the building to be called Chesapeake Energy Arena. As part of the naming rights deal, McClendon also agreed to give what will amount to about $545,000 to Oklahoma City-based charities over the first two years of the contract.
Some analysts and investors have called for McClendon to step down after it was discovered that McClendon planned to borrow more than $1 billion from a EIG Global Energy, a private equity firm that was raising money for Chesapeake, to pay for his investment in the wells, which the board was previously unaware of. He had already invested more than $585 million to help finance the wells over the last 15 months, according to an SEC filing.
Noster Capital, a small hedge fund in London, sent a letter to Chesapeake’s board on Monday, asking the company to terminate its relationship with McClendon. In the letter, Noster’s managing partner Pedro Noronha, says that McClendon made $303.6 million over the last five years despite shares losing 23 percent of their value (excluding dividends). As of 2:30 p.m. ET on Monday, Chesapeake’s shares were up 5.8 percent on the day thanks in part to McClendon saying he’d welcome activist Carl Icahn as a shareholder.
McClendon’s athletic involvement goes beyond the Thunder. He donated money for the University of Oklahoma to build the McClendon Center for Intercollegiate Athletics, which houses the athletic department’s administrative offices and student-athlete services.
Participating Member
Re: Chesapeake Business Practices
I believe we are witnessing the final death spiral of Chesapeake Energy. It may take months, but ultimately I cannot imagine that the company that exists when the smoke clears will bear any resembalance to the one that exists today. We are witnessing history in the making.
Participating Member
Re: Chesapeake Business Practices
Chesapeake Energy Corp sets a new 52-week low 05/15 11:53 AM
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Chesapeake Energy Corp (CHK:$14.4576,$-1.0624,-6.85%) crossed below its 52-week low of $14.49 on 12:53 PM on May 15, 2012.
Owner / Administrator
Re: Chesapeake Business Practices
That's a quarter of a billion in annual interest alone.borrowing $3 billion at 8.5 percent
I'm beginning to worry that their complex financial structure is going to be a real hurdle to even selling off assets just to meet their cash flow requirements.
And assuming they can pull themselves out of this short-term situation, their longer term prospects are still very concerning.
Owner / Administrator
Re: Chesapeake Business Practices
I think before things get a whole lot worse, they will shake up the management team and get someone in there that can figure out how to manage their massive asset base and their equally massive debt structure.
However, it's widely understood that McClendon will never step down voluntarily.
Participating Member
Re: Chesapeake Business Practices
Chpk has spent $3.2 million on Thunder season tickets this season...just another way for Aubrey to take Chpk dollars and put them in his own pocket. Kind of like the arena naming rights deal, although he decided to donate those proceeds to try to fend off the criticism.
Participating Member
Re: Chesapeake Business Practices
Big stock position puts Chesapeake employees at risk
NEW YORK | Tue May 15, 2012 1:19pm EDT
NEW YORK (Reuters) - The woes of Chesapeake Energy Corp are hitting shareholders hard, including its employees.
Thousands of Chesapeake workers have retirement portfolios that are heavily invested in Chesapeake stock, which has declined sharply following revelations about Chief Executive Aubrey K. McClendon's business dealings.
But while retail and institutional investors have sold the stock, employees don't always have that option.
Overall, 38 percent of Chesapeake Energy's Savings & Incentive Stock Bonus Plan - the only 401(k) plan available to the majority of the firm's employees - is in company stock, far above the 10 percent many plan consultants advise.
Currently, Chesapeake says about 4,000 employees are restricted from selling shares the company puts into their retirement portfolios to "match" the employee's own contribution in the plan.
Most companies stopped offering 401(k) matches in stock after the 2001 collapse of Enron Corp, where employees were unable to sell their shares as the company went bankrupt.
Despite regulatory reforms aimed at reducing worker exposure to employer stock, Chesapeake is among a minority of companies that still offer 401(k) matching contribution in shares, highlighting the risk of tying a worker's nest egg to an employer's success.
Chesapeake's stock had dropped almost 40 percent to $15.52 at Monday's close since its high this year of $25.58 in March. The shares were down nearly 7 percent on Tuesday, hit by a rating downgrade and word the company had increased a new bridge loan.
"Employees are naturally worried," said Greg Womack, an Edmond, Oklahoma-based financial adviser who says he has been fielding calls from concerned Chesapeake employees. "If the stock doesn't recover, this is a substantial part of people's retirement."
Chesapeake's retirement plan, to be sure, has been a generous one, and helped put the Oklahoma City-based company on Fortune's 100 Best Places to Work since 2008.
The company matches every dollar a salaried employee invests in the 401(k) plan - up to 15 percent of an employee's salary - with shares of stock. That's more than three times the typical match.
Stock matching programs help companies keep employee interests aligned with corporate goals. They also offer big tax benefits and substantial financial savings to companies.
Out of more than 13,000 employees, the 4,000 workers who cannot sell shares in the stock plan only represent 5 percent of the plan assets, said Michael Kehs, a Chesapeake spokesman, who declined to give total assets in the plan or plan details.
Those 4,000 employees are newer employees, who likely are making small contributions to the plan, thus accounting for the 5 percent, said Don Stone, managing partner of Chicago-based Plan Sponsor Advisors, a plan consultant.
"But just because they may have small balances in their 401(k) plans doesn't change the fact that it could be a big percentage of those employees' money," Stone said.
According to a Chesapeake's 2010 filing on its 401(k) plan, which is the latest available, the plan had $490 million in assets as of December 31, 2010. The firm's 149 union employees are offered a different 401(k) plan that matches employees' contributions in cash - 50 cents for every dollar up to 4 percent of employees' salaries, Kehs said.
Chesapeake requires employees in its retirement plan to hold stock for the maximum amount of time allowed by law: until they have been employed for three years or have reached age 55.
"Chesapeake has created a fairly volatile situation here," said Greg Ash, a partner at Kansas City-based Spencer Fane Britt & Browne LLP, which represents employers on retirement plan issues.
"In an industry in which the stock price can go up and down quickly and especially with all of the recent headlines, I would hope they are talking about removing the three-year lock in (for the employee match)," said Ash.
Chesapeake's workers can invest their own contributions in company stock or in an array of more than 28 investment options, according to BrightScope, which tracks 401(k) plans and rates the plan above-average compared to its peers.
Chesapeake says 95 percent of the plan assets and 98 percent of the vested plan assets can be diversified.
On average, employers match worker contributions up to 3 to 4 percent of their salary, almost always with cash, according to plan consultants. Some companies offer slightly more.
Only 12 percent of companies provide a company stock match, down from 45 percent in 2001, according to benefits consultancy Aon Hewitt. And only 1.2 percent of plans that give a match in company stock do not allow employees to sell that stock immediately.
Three former employees interviewed by Reuters said they still held Chesapeake shares and were holding onto their stock with the hope that it would rebound.
For others, what was once an attractive perk doesn't seem that way anymore.
"At the time, I viewed it as a company putting their money where their mouth is," said one former employee, who has left the company.
Now that he's in his thirties and has a family, he said he would not be as comfortable with the idea.
Many companies offer an Employee Stock Ownership Plan (ESOP) inside a 401(k) - which is what Chesapeake offers - and supplement it with another kind of retirement benefit plan to provide employees more diversification, according to Michael Keeling, president of the Employee Stock Ownership Plan Association, a trade group. But there is no additional plan available for non-union employees at Chesapeake.
EDUCATIONAL EFFORTS
Chesapeake "routinely reviews the plan design and investments taking into account all Internal Revenue Service and Department of Labor guidelines," the company spokesman said in an email to Reuters.
Principal Financial Group runs the company's financial literacy education program. According to Principal documents about the program supplied to Reuters by Chesapeake, the company regularly sends educational materials about its 401(k) plan to employees that emphasize the need to diversify.
Five former employees interviewed by Reuters agree that the company makes concerted efforts to educate plan participants.
Despite these efforts, more than one-third of Chesapeake's plan remains in company stock, down from a high of 77 percent in 2005, but still way above industry average.
The average 401(k) plan had 11.4 percent in company stock at the end of 2010, down from 13 percent in 2009, according to an Aon Hewitt survey of 401(k) plans that, in total, served more than 12 million employees.
LITIGATION LIABILITIES
From 1997 through July 2010, 211 class action lawsuits were filed against employers over company stock, according to Cornerstone Research.
While these cases tend to be dismissed or settled, the threat of a suit and the bad publicity and legal hassles that come with it has led many companies to stop offering stock matches, said Bill McClain, a consultant for Mercer who advises 401(k) plans.
"If you have major movement in the company stock it could be very well made into a lawsuit," McClain said.
But it could be hard to get traction for litigation, given that Chesapeake's 401k plan is an ESOP.
In a regular 401(k) plan with a company stock fund, it would be easier to make a case that the plan should have removed the stock fund if the stock fell dramatically, said Elizabeth Nedrow, a partner at Holland & Hart LLP, who represents employers in these cases.
"That argument is harder to make with an ESOP because by statute there is a presumption that the plan is supposed to invest in company stock," Nedrow says.
(Reporting By Jessica Toonkel; Matt Robinson; Additional reporting by Jennifer Cummings; Editing by Lauren Young, Jennifer Merritt and Tim Dobbyn)
Participating Member
Re: Chesapeake Business Practices
They are leveraging every asset they can, including rights to future production, just to survive the short term. Assuming they can survive the short term with rabbit-out-of-the-hat financing and loans, how will they survive the long term with no cash flow (assuming nat gas prices don't rise 150% in the next 12 months)? Eventually, there is nothing more to leverage and the creditors will come calling. When you sell your future, you have no future.
Platinum Member
Re: Chesapeake Business Practices
they have not come close to "leveraging every asset they can" .....
Participating Member
Re: Chesapeake Business Practices
I've recently learned that Martha Burger (SVP of Human & Corporate Resources at CHK) is retiring. According to Forbes, Burger, who is 58, made $4.76MM in 2010. Looks like at least some folks are starting to head for the exits before the building burns down...
Participating Member
Re: Chesapeake Business Practices
Why then are they paying 8.75% interest on a $4B unsecured loan?
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