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What Are Chesapeake Energy’s Plans to Reduce Its Debt?

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Chesapeake Energy’s suspended dividends

In July 2015, CHK announced that it would eliminate its common stock dividend, effective in 3Q15, to save $240 million annually. The company believes this will strengthen its financial position. In January 2016, the company announced the suspension of its preferred stock dividend. This will allow the company to save ~$170 million of additional cash per year.

Many upstream companies have eliminated or cut dividends amid lower energy prices. These include Anadarko Petroleum (APC), Marathon Oil (MRO), and Devon Energy (DVN). All these companies make up ~4% of the Energy Select Sector SPDR Fund (XLE).

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CHK’s debt exchange and revolving credit amendment

In December 2015, CHK completed a debt exchange wherein it converted $3.8 billion of unsecured debt into new second-lien notes. In October 2015, the company repurchased ~$396 million of its 30-year bonds, which mature in 2035.

Additionally, during 3Q15, Chesapeake Energy amended its revolving credit facility to a $4.0 billion senior secured revolving credit facility from a senior unsecured revolving credit facility to “provide more flexibility and access to liquidity.”

Layoffs and restructuring of gathering agreements

In September 2015, CHK reduced its workforce by ~15% to reduce costs and align its workforce with the current commodity price environment.

CHK also noted that it recently restructured its gathering, processing, and transportation agreements to improve per-unit rates, which will enhance volume growth and fulfill minimum volume commitment.

In its annual 10-K filing, CHK noted, “We are also evaluating additional capital exchanges, asset sales, joint ventures and farmouts to increase our liquidity and cash flow.”

Apart from these key strategies, CHK has been divesting assets and has announced a 57% year-over-year reduction in its capital expenditure to reduce its debt load and improve liquidity.

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