Chesapeake Energy 1997 Annual Report Download - page 43

On March 17, 1997, the Company concluded the sale of $150 million of 7.875% Senior Notes due 2004
(the "7.875% Senior Notes"), and $150 million of 8.5% Senior Notes due 2012 (the "8.5% Senior Notes"),
which offering resulted in net proceeds to the Company of approximately $292.6 million. The 7.875% Senior
Notes were issued at 99.92% of par and the 8.5% Senior Notes were issued at 99.4 14% of par. The 7.875%
Senior Notes and the 8.5% Senior Notes are redeemable at the option of the Company at any time at the
redemption or make-whole prices set forth in the respective Indentures. In April 1997 the Company
terminated its commercial bank facilities.
In fiscal 1996, cash flows from financing activities were $219.5 million, largely as the result of the
issuance of 5,989,500 shares of Common Stock (net proceeds to the Company of approximately $99.4 mil-
lion) and $120 million of 9.125% Senior Notes due 2006 (the "9.125% Senior Notes"). The Company may, at
its option, redeem prior to April 15, 1999 up to $42 million principal amount of the 9.125% Senior Notes at
109.125% of the principal amount thereof from equity offering proceeds. The 9.125% Senior Notes are
redeemable at the option of the Company at any time at the redemption or make-whole prices set forth in the
Indenture.
Financial Flexibility and Liquidity. The Company had working capital of approximately $151.3 million
at June 30, 1997. During fiscal 1997, the Company invested in a number of oil and gas related businesses and
projects. The most significant of these was the Company's initial investment made in Bayard, consisting of an
$18 million subordinated note and $7 million of common stock. In August 1997, the Company entered into an
agreement with Bayard to invest up to an additional $9 million and convert certain options, warrants and note
amounts that will facilitate a potential initial public offering by Bayard. On August 27, 1997 Bayard filed a
registration statement for an initial public offering of its common stock. Chesapeake, subsequent to the
completion of the transaction noted above, will own 4,194,000 shares of Bayard common stock (30.4% of the
common stock outstanding) and anticipates selling substantially all of its ownership in Bayard in the IPO
(assuming the over-allotment option is exercised) and receiving repayment of the subordinated note. If
successful, assuming the sale of all of the Company's Bayard stock, and based on the initial filing price of
Bayard at $15 per share, the Company would receive total proceeds of approximately $74 million (net of
offering costs) and realize a pre-tax gain of approximately $40 million. No assurance can be given, however,
that Bayard will successfully complete the initial public offering of its common stock, at what price, or that the
net proceeds or pre-tax gain discussed above will be realized by the Company.
The Company also made investments in Louisiana Trend gas gathering and processing facilities which it
may sell during fiscal 1998. These investments include a 50% interest in the Louisiana Austin Chalk
Gathering System, and a 15.5% interest in the Masters Creek Gas Plant. If the Company decides to sell these
investments, the Company expects that the proceeds should exceed the Company's cost basis of $16.8 million
as of June 30, 1997.
The Company currently maintains no commercial bank credit facilities because of its substantial working
capital position, anticipated proceeds from the sale of the investments described above, and expected cash
flows from operations as compared to the fiscal 1998 capital expenditure budget. Although the Senior Note
Indentures contain various restrictions on additional indebtedness, based on asset values as of June 30, 1997,
the Company estimates it could borrow up to approximately $100 million of commercial bank debt within
these restrictions.
Debt ratings for the Senior Notes are Ba3 by Moody's Investors Service and BB- by Standard & Poor's
Corporation as of September 30, 1997. The Company's long-term debt represented approximately 64% of total
capital at June 30, 1997. There are no scheduled principal payments required on any of the Senior Notes until
June 2002. The Company's goal is to achieve an equity to capital ratio of at least 50% and to increase its credit
ratings, ultimately achieving an investment grade debt rating.
Forward Looking Statements
The information contained in this Form 10-K includes certain forward-looking statements. When used in
this document, the words budget, budgeted, anticipate, expects, estimates, believes, goals or projects and
similar expressions are intended to identify forward-looking statements. It is important to note that
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