Chesapeake Energy 2000 Annual Report Download - page 42

At December 31, 2000, our senior notes represented $919 million of our $945 million of long-term debt.
Debt ratings for the senior notes are B2 by Moody's Investors Service and B+ by Standard & Poor's Ratings
Services as of January 2001. There are no scheduled principal payments required on any of the senior notes
until 2004, 2005, and thereafter, when $150 million, $500 million and $269 million, respectively, are due.
As of March 28, 2001, Chesapeake has purchased and subsequently retired $7.3 million of the $150
million 8.5% senior notes for total consideration of $7.4 million, including accrued interest of $0.2 million.
Chesapeake's senior note indentures restrict the ability of Chesapeake and our restricted subsidiaries to
incur additional indebtedness. As of December 31, 2000, we estimate that secured commercial bank
indebtedness of $681 million could have been incurred within these restrictions. The Chesapeake indenture
restrictions do not apply to our unrestricted subsidiaries, Chesapeake Energy Marketing, Inc. and Gothic
Energy Corporation and its subsidiary.
Chesapeake's senior note indentures also limit our ability to make restricted payments (as defined),
including the payment of cash dividends, unless certain tests are met. From December 31, 1998 through
March 31, 2000, we were unable to meet the requirements to incur additional unsecured indebtedness, and
consequently were restricted from paying cash dividends on our 7% cumulative convertible preferred stock. On
September 22, 2000, we declared a regular quarterly dividend and a special dividend equal to all unpaid
dividends on our preferred stock both payable November 1, 2000 to shareholders of record on October 16,
2000. A total combined dividend of $7.444 per outstanding preferred share was paid November 1, 2000,
eliminating the accumulated unpaid dividends.
During 2000, Chesapeake engaged in unsolicited transactions in which a total of 43.4 million shares of
Chesapeake common stock, plus a cash payment of $8.3 million, were exchanged for 3,972,363 shares of
Chesapeake preferred stock. These transactions reduced the number of preferred shares outstanding from 4.6
million to 0.6 million, and reduced the liquidation value of shares of outstanding preferred stock from $229.8
million to $31.2 million. In addition, these transactions eliminated $22.9 million of dividends in arrears during
2000. A gain on redemption of all preferred shares exchanged during 2000 of $6.6 million is reflected in net
income available to common shareholders in determining basic earnings per share for the year ended
December 31, 2000. Chesapeake has called for redemption all the outstanding shares of preferred stock for
$52.45 per share, plus accumulated and unpaid dividends, on May 1, 2001 pursuant to the optional redemption
provisions of the certificate of designation for the preferred stock. Other than the redemption premium, which
will be paid in cash, we intend to use our common stock to redeem any shares of the outstanding preferred
stock that are not converted into common stock prior to the redemption date.
During 2000, Chesapeake Energy Marketing, Inc. purchased 99.8% of Gothic Energy Corporation's $104
million 14.125% Series B senior secured discount notes for total consideration of $80.8 million, comprised of
$17.2 million in cash and $63.6 million of Chesapeake common stock (8,875,775 shares valued at $7.16 per
share), as adjusted for make-whole provisions described above. Through the make-whole provisions,
Chesapeake Energy Marketing, Inc. received $6.1 million in cash and $7 2 million of Chesapeake common
stock (982,562 shares). Gothic redeemed all remaining outstanding senior secured discount notes on
March 12, 2001 for total cash consideration of $243,000 pursuant to the optional make-whole redemption
provisions of the indenture.
In 2000, Chesapeake purchased $31.6 million of the 11.125% senior secured notes issued by Gothic
Production Corporation for total consideration of $34.8 million, comprised of $11.5 million in cash and $23.3
million of Chesapeake common stock (3,694,939 shares valued at $6.30 per share), as adjusted for make-
whole provisions described above. Through the make-whole provisions, Chesapeake received $1 0 million in
cash. In February 2001, Chesapeake purchased $1.0 million principal amount of Gothic senior secured notes
tendered at 101%. The notes purchased in 2000 and those tendered pursuant to the change-of-control offer to
purchase, representing a total of $32.7 million principal amount, were retired and cancelled in February 2001.
We completed the acquisition of Gothic Energy Corporation on January 16, 2001 by merging a wholly-
owned subsidiary into Gothic. We issued a total of 4.0 million common shares in the merger. Gothic
shareholders (other than Chesapeake) received 0.1908 of a share of Chesapeake common stock for each share
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