Chesapeake Energy 2013 Annual Report Download - page 100

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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Although the applicable interest rates under our corporate credit facility fluctuate based on our long-term senior
unsecured credit ratings, our credit facilities do not contain provisions which would trigger an acceleration of amounts
due under the respective facilities or a requirement to post additional collateral in the event of a downgrade of our
credit ratings.
Corporate Credit Facility. Our $4.0 billion syndicated revolving bank credit facility is used for general corporate
purposes. Borrowings under the facility are secured by proved reserves and bear interest at our option at either (i) the
greater of the reference rate of Union Bank, N.A. or the federal funds effective rate plus 0.50%, both of which are
subject to a margin that varies from 0.50% to 1.25% per annum according to our senior unsecured long-term debt
ratings, or (ii) the Eurodollar rate, which is based on LIBOR, plus a margin that varies from 1.50% to 2.25% per annum
according to our senior unsecured long-term debt ratings. The collateral value and borrowing base are determined
periodically. 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.
Our corporate credit facility agreement contains various covenants and restrictive provisions which limit our ability
to incur additional indebtedness, make investments or loans and create liens and require us to maintain an indebtedness
to total capitalization ratio and an indebtedness to EBITDA ratio, in each case as defined in the agreement. We were
in compliance with all covenants under our corporate credit facility agreement as of December 31, 2013.
In September 2012, we entered into an amendment to the credit facility agreement, effective September 30,
2012. The amendment, among other things, adjusted our required indebtedness to EBITDA ratio through the earlier
of (i) December 31, 2013 and (ii) the date on which we elected to reinstate the indebtedness to EBITDA ratio in effect
prior to the amendment (in either case, the “Amendment Effective Period”). The credit facility amendment also increased
the applicable margin by 0.25% for borrowings during the Amendment Effective Period when credit extensions exceeded
50% of the borrowing capacity. The amendment did not allow our collateral value securing the borrowings to be more
than $75 million below the collateral value that was in effect as of September 30, 2012 during the Amendment Effective
Period. During the Amendment Effective Period, the amendment increased the maximum indebtedness to EBITDA
ratio to 6.00 to 1.00 as of September 30, 2012, 5.00 to 1.00 as of December 31, 2012 and 4.75 to 1.00 as of March
31, 2013. On June 28, 2013, we elected to reinstate the indebtedness to EBITDA ratio to 4.00 to 1.00, which was the
ratio in effect prior to the amendment.
Our corporate credit facility is fully and unconditionally guaranteed, on a joint and several basis, by Chesapeake
and certain of our wholly owned subsidiaries. If we should fail to perform our obligations under the credit facility
agreement, the revolving credit commitment could be terminated and any outstanding borrowings under the facility
could be declared immediately due and payable. Such acceleration, if involving a principal amount of $50 million or
more, would constitute an event of default under our senior note and contingent convertible senior note indentures,
which could in turn result in the acceleration of a significant portion of such indebtedness. The credit facility agreement
also has cross default provisions that apply to our secured hedging facility, equipment master lease agreements, term
loan and other indebtedness of Chesapeake and its restricted subsidiaries with an outstanding principal amount in
excess of $125 million. In addition, the facility contains a restriction on our ability to declare and pay cash dividends
on our common or preferred stock if an event of default has occurred.
Oilfield Services Credit Facility. Our $500 million syndicated oilfield services revolving bank credit facility is used
to fund capital expenditures and for general corporate purposes associated with our oilfield services operations.
Borrowings under the oilfield services credit facility are secured by all of the assets of the wholly owned subsidiaries
of COO, itself an indirect wholly owned subsidiary of Chesapeake. The facility has initial commitments of $500 million
and may be expanded to $900 million at COO’s option, subject to additional bank participation. Borrowings under the
credit facility are secured by all of the equity interests and assets of COO and its wholly owned subsidiaries (the
restricted subsidiaries for this facility, which are unrestricted subsidiaries under Chesapeake’s senior notes, contingent
convertible senior notes, term loan and corporate revolving bank credit facility), and bear interest at our option at either
(i) the greater of the reference rate of Bank of America, N.A., the federal funds effective rate plus 0.50%, or one-month
LIBOR plus 1.00%, all of which are subject to a margin that varies from 1.00% to 1.75% per annum, or (ii) the Eurodollar
rate, which is based on LIBOR plus a margin that varies from 2.00% to 2.75% per annum. The unused portion of the
credit facility is subject to a commitment fee that varies from 0.375% to 0.50% per annum. Both margins and commitment
fees are determined according to the most recent leverage ratio described below. Interest is payable quarterly or, if
LIBOR applies, it may be payable at more frequent intervals.
The oilfield services credit facility agreement contains various covenants and restrictive provisions which limit
the ability of COO and its restricted subsidiaries to enter into asset sales, incur additional indebtedness, make