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Is Chesapeake Energy’s Debt Position Improving?

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Chesapeake’s net debt-to-EBITDA

Chesapeake Energy’s (CHK) net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) multiple was under 2.5x through 2014. In 2015, its net debt-to-EBITDA multiple started rising mostly because of significant drops in its EBITDA as a result of lower commodity prices.

After reducing its net debt to as low as $7 billion in 4Q14, Chesapeake Energy saw higher net debt levels in 2015. However, by the end of 2015, its net debt level stabilized, despite remaining higher than its 4Q14 net debt level. Chesapeake Energy’s 4Q15 net debt was $9.9 billion and its trailing-12-month adjusted EBITDA came in at ~$2.8 billion in 4Q15—compared to $5 billion in 4Q14.

As of December 31, Chesapeake had $10.7 billion in total debt.

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On February 8, 2016, Chesapeake Energy fell ~33% due to reports that the company was looking to restructure its ~$10 billion debt load. However, the company issued a press release saying, “Chesapeake currently has no plans to pursue bankruptcy and is aggressively seeking to maximize value for all shareholders.”

Peer group comparison

Other upstream companies including Hess (HES), Marathon Oil (MRO), and ConocoPhillips (COP) saw significantly lower EBITDA levels last year compared to 2014 due to lower crude oil prices (USO). Their respective 4Q15 EBITDA for the trailing 12 months fell by 56%, 38%, and 65%. These companies account for ~5% of the Energy Select Sector SPDR ETF (XLE).

Chesapeake’s liquidity

As of February 23, 2016, Chesapeake Energy had cash on hand of more than $300 million. Combined with its $4 billion revolving credit facility, the total liquidity available to Chesapeake Energy is $4.3 billion.

In the next part of this series, we’ll discuss Chesapeake’s cash flow trends.

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