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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
91
Revolving loans under the revolving credit facility bear interest at a fluctuating rate per annum equal to the highest
of (i) the federal funds effective rate plus 0.5%, (ii) the administrative agent’s prime rate or (iii) the London interbank
offer rate (LIBOR) for a one-month interest period plus 1.0% (alternative base rate (ABR) loans), and/or LIBOR rates
(LIBOR loans), at our election, plus an applicable margin rate depending on our credit rating (currently 0.625% per
annum for ABR loans and 1.625% per annum for LIBOR loans). The terms of the credit facility include covenants
limiting, among other things, the ability of the Company and its restricted subsidiaries to incur additional indebtedness,
make investments or loans, create liens, consummate mergers and similar fundamental changes, make restricted
payments, make investments in unrestricted subsidiaries and enter into transactions with affiliates. In addition, the
credit facility requires us to maintain, as of the last day of each fiscal quarter, (i) a net debt to capitalization ratio (as
defined in the credit agreement) that does not exceed 65%; and (ii) a leverage ratio (net debt to consolidated EBITDA,
as defined in the credit agreement) that does not exceed 4.0 to 1.0; provided, however, that the leverage ratio will not
apply during any period in which our credit rating, as determined by either Moody’s Investors Services, Inc. or Standard
& Poor’s Rating Services, meet and continue to meet certain investment grade thresholds, as defined in the credit
agreement.
Our credit facility is fully and unconditionally guaranteed, on a joint and several basis, by certain of our material
subsidiaries. The credit agreement includes events of default relating to customary matters, including, among other
things, nonpayment of principal, interest or other amounts; violation of covenants; incorrectness of representations
and warranties in any material respect; cross-payment default and cross acceleration with respect to indebtedness in
an aggregate principal amount of $125 million or more; bankruptcy; judgments involving liability of $125 million or more
that are not paid; and ERISA events. Many events of default are subject to customary notice and cure periods.
Spin-Off Debt Transactions
Prior to the spin-off of our oilfield services business, COO or its subsidiaries completed the following debt
transactions:
• Entered into a five-year senior secured revolving credit facility with total commitments of $275 million and
incurred approximately $3 million in financing costs related to entering into the facility.
• Entered into a $400 million seven-year secured term loan and used the net proceeds of approximately $394
million and borrowings under the new revolving credit facility to repay and terminate COO’s existing credit
facility.
• Issued $500 million in aggregate principal amount of 6.5% Senior Notes due 2022 in a private placement
and used the net proceeds of approximately $494 million to make a cash distribution of approximately $391
million to us, to repay a portion of outstanding indebtedness under the new revolving credit facility discussed
above and for general corporate purposes.
All deferred charges and debt balances related to these transactions were removed from our consolidated balance
sheet as of June 30, 2014. See Note 13 for further discussion of the spin-off.
Fair Value of Debt
We estimate the fair value of our exchange-traded debt using quoted market prices (Level 1). The fair value of
all other debt, which currently consists of our revolving credit facility and as of December 31, 2013 also consisted of
our former oilfield services credit facility and term loan, is estimated using our credit default swap rate (Level 2). Fair
value is compared to the carrying value, excluding the impact of interest rate derivatives, in the table below.
December 31, 2014 December 31, 2013
Carrying
Amount Estimated
Fair Value Carrying
Amount Estimated
Fair Value
($ in millions)
Long-term debt (Level 1) $ 11,525 $ 12,052 $ 10,501 $ 11,557
Long-term debt (Level 2) $ — $ — $ 2,372 $ 2,369