Chesapeake Energy 2010 Annual Report Download - page 135

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
our senior note indebtedness. The credit facility agreement also has cross default provisions that apply to other
indebtedness of Chesapeake and its restricted subsidiaries with an outstanding principal amount in excess of
$125 million.
The facility is fully and unconditionally guaranteed, on a joint and several basis, by Chesapeake and
certain of our wholly owned subsidiaries.
Midstream Credit Facility
Our $300 million midstream syndicated revolving bank credit facility is used to fund capital expenditures to
build natural gas gathering and other systems for our drilling program and for general corporate purposes
associated with our midstream operations. Borrowings under the midstream credit facility are secured by all of
the assets of the wholly owned subsidiaries (the restricted subsidiaries) of Chesapeake Midstream
Development, L.P. (CMD), itself a wholly owned subsidiary of Chesapeake, and bear interest at our option at
either (i) the greater of the reference rate of Wells Fargo Bank, National Association, the federal funds effective
rate plus 0.50%, and the one-month LIBOR plus 1.00%, all of which are subject to a margin that varies from
1.75% to 2.25% per annum according to the most recent leverage ratio described below or (ii) the Eurodollar
rate, which is based on the LIBOR plus a margin that varies from 2.75% to 3.25% per annum according to the
most recent leverage ratio. The unused portion of the facility is subject to a commitment fee of 0.50% per
annum. Interest is payable quarterly or, if LIBOR applies, it may be payable at more frequent intervals.
The midstream credit facility agreement contains various covenants and restrictive provisions which limit
the ability of CMD and its restricted subsidiaries to incur additional indebtedness, make investments or loans
and create liens. The agreement requires maintenance of a leverage ratio based on the ratio of indebtedness
to EBITDA and an interest coverage ratio based on the ratio of EBITDA to interest expense, in each case as
defined in the agreement. The leverage ratio increases during any three-quarter period, beginning in the
quarter in which CMD makes a material disposition of assets to our master limited partnership midstream
affiliate, Chesapeake Midstream Partners, L.P. As of December 21, 2010, the leverage ratio increased for a
three fiscal quarter period beginning October 1, 2010 due to the sale of the Springridge gathering system as it
was classified as a material disposition of assets. We were in compliance with all covenants under the
agreement at December 31, 2010. If CMD or its restricted subsidiaries should fail to perform their obligations
under these and other covenants, the revolving credit commitment could be terminated and any outstanding
borrowings under the facility could be declared immediately due and payable. The midstream credit facility
agreement also has cross default provisions that apply to other indebtedness CMD and its restricted
subsidiaries may have with an outstanding principal amount in excess of $15 million.
Other Financings
In 2009, we financed 113 real estate surface assets in the Barnett Shale area for approximately $145
million and entered into a 40-year master lease agreement under which we agreed to lease the sites for
approximately $15 million to $27 million annually. This lease transaction was recorded as a financing lease and
the cash received was recorded with an offsetting long-term liability on the consolidated balance sheet.
Chesapeake exercised its option to repurchase two of the assets in 2010. As of December 31, 2010, 111
assets were leased and the minimum aggregate undiscounted future lease payments were approximately $828
million. This obligation is recorded in other long-term liabilities on our consolidated balance sheets.
In 2009, we financed our regional Barnett Shale headquarters building in Fort Worth, Texas for net
proceeds of approximately $54 million with a five-year term loan which has a floating rate of prime plus 275
basis points. At our option, we may prepay in full without penalty beginning in year four. The payment
obligation is guaranteed by Chesapeake. This obligation is recorded in other long-term liabilities on our
consolidated balance sheets.
4. Contingencies and Commitments
Litigation
On February 25, 2009, a putative class action was filed in the U.S. District Court for the Southern District
of New York against the company and certain of its officers and directors along with certain underwriters of the
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