Chesapeake Energy 2015 Annual Report Download - page 101

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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Revolving Credit Facility
In September and December 2015, we amended our $4.0 billion senior revolving credit facility dated December
15, 2014 and maturing December 2019, which is used for general corporate purposes. Pursuant to the amended credit
agreement, we are required to secure our obligations under the facility with liens on certain of our oil and natural gas
properties, with such liens to be released upon the satisfaction of specific conditions. The amended credit facility
provides that, while the obligations are required to be secured, (i) we have the right to incur junior lien indebtedness
of up to $4.0 billion; (ii) our use of the facility will be subject to a borrowing base; (iii) the rate of interest on outstanding
loans, as well as fees on undrawn commitments, will vary based on the percentage of the borrowing base used, rather
than on our credit ratings; (iv) the total leverage ratio covenant will be suspended; and (v) the credit facility will be
subject to a first lien secured leverage ratio and an interest rate coverage ratio (as described below). The permitted
junior lien debt basket of $4.0 billion may be increased upon the satisfaction of certain conditions, including the following:
(i) after giving effect to all debt secured by such junior liens and the uses of such debt in retirement of other indebtedness,
our net annual cash interest expense would increase by no more than $75 million, and (ii) we have exchanged debt
secured by such junior liens for more than $2.0 billion aggregate principal amount of outstanding senior notes with
maturities or initial put dates in 2017 through 2019. The September amendment sets the borrowing base at $4.0 billion.
The total commitments under the credit facility remain at $4.0 billion, subject to reduction in connection with issuances
of junior lien indebtedness by us after April 15, 2016, the date of the first borrowing base redetermination. No adjustment
to the total commitment has occurred or will occur for any junior lien indebtedness issuance that occurs before April
15, 2016. As of December 31, 2015, we had no outstanding borrowings under the facility and had used $16 million of
the facility for various letters of credit.
While obligations under our credit facility are required to be secured, revolving loans under the amended credit
facility will bear interest, at our election, at either (i) a fluctuating rate per annum equal to the highest of (a) the federal
funds effective rate plus 0.5%, (b) the administrative agent’s prime rate or (c) the London interbank offer rate (LIBOR)
for a one-month interest period plus 1.0% (alternative base rate (ABR) loans), or (ii) a LIBOR rate (LIBOR loans), in
each case plus a margin based on the percentage of the borrowing base used (currently 1.0% per annum for ABR
loans and 2.0% per annum for LIBOR loans). The terms of the credit facility include covenants limiting, among other
things, our ability 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, together with a requirement that we maintain, as of the last day of each fiscal quarter, a net
debt to capitalization ratio (as defined in the amended credit agreement) that does not exceed 65%. While it is required
to be secured by a portion of our oil and natural gas properties, the amended credit facility requires us to maintain, as
of the last day of each fiscal quarter (i) a first lien secured leverage ratio (as defined in the amended credit agreement)
of 3.5 to 1.0 through 2017 and no more than 3.0 to 1.0 thereafter, and (ii) an interest rate coverage ratio (as defined
in the amended credit agreement) of at least 1.1 to 1.0 through the first quarter of 2017, increasing to 1.25 to 1.0 by
the end of 2017.
Our credit facility is fully and unconditionally guaranteed, on a joint and several basis, by certain of our material
subsidiaries. The amended 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.
Term Loan
In November 2012, we established an unsecured five-year term loan credit facility in an aggregate principal
amount of $2.0 billion for net proceeds of $1.935 billion. The term loan provided that it could be voluntarily repaid before
November 9, 2015 at par plus a specified premium and at any time thereafter at par. The maturity date of the term loan
was December 2, 2017. In 2014, we used a portion of the net proceeds from our offering of $3.0 billion in aggregate
principal amount of senior notes to repay the borrowings under, and terminate, the term loan. We recorded a loss of
$90 million, consisting of $40 million in premiums, $30 million of unamortized discount and $20 million of unamortized
deferred charges, in connection with the termination.