MuskogeePhoenix.com, Muskogee, OK

Oklahoma News

May 15, 2012

Chesapeake credit downgraded

NEW YORK (AP) – Standard & Poor’s lowered Chesapeake Energy’s credit rating Tuesday, questioning how quickly the company could remedy its financial woes.

Chesapeake shares dropped more than 6 percent to the lowest level since March 2009.

The credit ratings agency believes Chesapeake will struggle to generate enough cash to pay off its debts as natural gas prices plunge. Standard & Poor’s also noted that the “mounting turmoil” from CEO Aubrey McClendon’s personal financial dealings could make it tougher for the company to raise money in the future.

Chesapeake said Tuesday that it boosted the size of an unsecured term loan from Goldman Sachs Bank USA and affiliates of Jefferies Group Inc. from $3 billion to $4 billion.

Chesapeake said the $3.8 billion in net proceeds from the loan will be used to repay debt under a revolving credit facility, and for general business purposes. The company said it was increasing the loan because of strong investor demand.

S&P pushed Chesapeake further into junk investment territory by dropping its rating a notch to “BB-,” saying the company “faces major ongoing uncertainties to adverse business, financial and economic conditions.”

Chesapeake saw revenues sink this year as natural gas prices tumbled to a 10-year low. It’s working to produce more profitable crude oil and liquid hydrocarbons, but the shift is costly and risky.

Meanwhile, published reports have revealed a number of corporate governance issues surrounding McClendon. The CEO ran his own hedge fund that placed bets on the price of oil and natural gas – commodities that his company produced.

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