Chesapeake Energy 2012 Annual Report Download - page 114

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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The November 2012 term loan matures on December 2, 2017 and is non-callable in the first year but may be
voluntarily repaid without penalty in the second and third years at par plus a specified call premium and may be
voluntarily repaid at any time thereafter at par. The term loan may also be refinanced or amended to extend the maturity
date at our option, subject to lender approval.
The term loan credit agreement contains negative covenants substantially similar to those contained in the
Company's corporate revolving bank credit facility, including covenants that limit our ability to incur indebtedness, grant
liens, make investments, loans and restricted payments and enter into certain business combination transactions.
Other covenants include additional restrictions regarding the incurrence of certain unsecured indebtedness, the
incurrence of secured indebtedness, the disposition of assets and the prepayment of certain indebtedness. The term
loan credit agreement does not contain financial maintenance covenants.
We were in compliance with all covenants under the term loan credit agreement at December 31, 2012. If we
should fail to perform our obligations under the agreement, the term loan could be terminated and any outstanding
borrowings under the term loan credit agreement could be declared immediately due and payable. The term loan credit
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.
May 2012 Term Loans. In May 2012, we entered into $4.0 billion of unsecured term loans under a credit agreement
that provided for term loans in an aggregate principal amount of $4.0 billion (May 2012 term loans). The net proceeds
of the term loans of approximately $3.789 billion after discount, customary fees and syndication costs were used to
repay borrowings under our corporate revolving credit facility and for general corporate purposes. The term loans were
issued at a discount of 3%, or $120 million, and the customary fees and syndication costs incurred were approximately
$91 million. In October and November 2012, we used $4.0 billion in proceeds from asset sales and our November
2012 term loan discussed above to fully repay the May 2012 term loans. We recorded $200 million of associated losses
with the repayment, including $86 million of deferred charges and $114 million of debt discount.
Chesapeake Senior Notes and Contingent Convertible Senior Notes
The Chesapeake senior notes and the contingent convertible senior notes are unsecured senior obligations of
Chesapeake and rank equally in right of payment with all of our other existing and future senior unsecured indebtedness
and rank senior in right of payment to all of our future subordinated indebtedness. Chesapeake is a holding company
and owns no operating assets and has no significant operations independent of its subsidiaries. Chesapeake’s
obligations under the senior notes and the contingent convertible senior notes are jointly and severally, fully and
unconditionally guaranteed by certain of our wholly owned subsidiaries. Certain of our oilfield services subsidiaries,
subsidiaries with noncontrolling interests, subsidiaries qualified as variable interest entities, and certain de minimis
subsidiaries are not guarantors. See Note 18 for condensed consolidating financial information regarding our guarantor
and non-guarantor subsidiaries.
We may redeem the senior notes, other than the contingent convertible senior notes, at any time at specified
make-whole or redemption prices. Our senior notes are governed by indentures containing covenants that may limit
our ability and our subsidiaries’ ability to incur certain secured indebtedness, enter into sale/leaseback transactions,
and consolidate, merge or transfer assets. The indentures governing the contingent convertible senior notes do not
have any financial or restricted payment covenants. The senior notes and contingent convertible senior notes indentures
have cross default provisions that apply to other indebtedness the Company or any guarantor subsidiary may have
from time to time with an outstanding principal amount of $50 million or $75 million, depending on the indenture.
We are required to account for the liability and equity components of our convertible debt instruments separately
and to reflect interest expense at the interest rate of similar nonconvertible debt at the time of issuance. These rates
for our 2.75% Contingent Convertible Senior Notes due 2035, our 2.5% Contingent Convertible Senior Notes due 2037
and our 2.25% Contingent Convertible Senior Notes due 2038 are 6.86%, 8.0% and 8.0%, respectively.
During 2012, we issued $1.3 billion of 6.775% Senior Notes due 2019 in a registered public offering. We used
the net proceeds of $1.263 billion from the offering to repay indebtedness outstanding under our corporate revolving
bank credit facility. At any time from and including November 15, 2012 to and including March 15, 2013, we may redeem
some or all of the notes at a redemption price equal to 100% of the principal amount of the notes plus accrued and
unpaid interest, if any, to the redemption date; provided that upon any redemption of the notes in part (and not in whole)
pursuant to this redemption provision, at least $250 million aggregate principal amount of the notes remains outstanding.