Chesapeake Energy 1998 Annual Report Download - page 53

investment in the Louisiana Chalk Gathering System and Masters Creek Gas Plant as well as additional investments
in its Oklahoma City office complex.
Cash Flows from Financing Activities. On December 2, 1996, the Company completed a public offering of
8,972,000 shares of common stock at a price of $33.63 per share resulting in net proceeds to the Company of
approximately $288.1 million Approximately $55 0 million of the proceeds was used to defease the Company's
$47.5 million senior notes due 2001, and $11.2 million of the proceeds was used to retire all amounts outstanding
under the Company's commercial bank credit facilities.
On March 17, 1997, the Company concluded the sale of $150 million of 7.875% senior notes due 2004, and
$150 million of 8.5% senior notes due 2012, 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% seniornotes
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 fiscal 1996, cash flows from fmancing 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 million) and $120 million
of 9.125% senior notes due 2006.
Financial Flexibility and Liquidity
The Company had a working capital deficit of $13 million at December 31, 1998 and a cash balance of $30
million The Company has a $50 million revolving bank credit facility, which matures in August 1999, with an
initial committed borrowing base of $50 million As of December 31, 1998, the Company had borrowed $25
million under this facility, which was included in the working capital deficit as a short-term obligation. Borrowings
under the facility are secured by certain producing oil and gas properties and bear interest at a rate of 7.75% per
annum as of December 31, 1998.
The senior note indentures contain various restrictions for the Company and its restricted subsidiaries to incur
additional indebtedness. As of December 31, 1998, the Company estimates that secured commercial bank
indebtedness of $115 million could have been incurred within these restrictions. This restriction does not apply to
borrowings incurred by CEMI, an unrestricted subsidiary.
The senior note indentures also limit the Company's ability to make restricted payments (as defmed), including
the payment of preferred stock dividends, unless certain tests are met. As of December 31, 1998, the Company was
unable to meet the requirements to incur additional unsecured indebtedness, and consequently was not able to pay
cash dividends on its 7% cumulative convertible preferred stock on February 1, 1999. Subsequent payments will be
subject to the same restrictions and are dependent upon variables that are beyond the Company's ability to predict.
This restriction does not affect the Company's ability to borrow under or expand its secured commercial bank
facility. If the Company fails to pay dividends for six quarterly periods, the holders of preferred stock would be
entitled to elect two additional members to the Board.
Debt ratings for the senior notes are B3 by Moody's Investors Service and B by Standard & Poor's Corporation
as of March 19, 1999, and both have placed the Company on review with negative implications. There are no
scheduled principal payments required on any of the senior notes until March 2004.
The Company believes it has adequate resources, including cash on hand, budgeted cash flow from operations
and proceeds from miscellaneous asset sales, to fund its capital expenditure budget for exploration and development
activities during 1999, which are currently estimated to be approximately $90 million The Company anticipates
proceeds from miscellaneous asset sales will be approximately $45 million during 1999. However, continued low
oil and gas prices or unfavorable drilling results could cause the Company to further reduce its drilling program,
which is largely discretionary.
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