Chesapeake Energy 2015 Annual Report Download - page 50

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Since December 2015, Moody’s has lowered our senior unsecured credit rating from “Ba3” to “Caa3”, and S&P
has lowered our senior unsecured credit rating from “BB-” to “CC”. Some of our counterparties have requested or
required us to post collateral as financial assurance of our performance under certain contractual arrangements, such
as transportation, gathering, processing and hedging agreements. As of February 24, 2016, we have received requests
to post approximately $220 million in collateral, of which we have posted approximately $92 million. We have posted
the required collateral, primarily in the form of letters of credit and cash, or are otherwise complying with the contractual
requests for collateral. We may be requested or required by other counterparties to post additional collateral in an
aggregate amount of approximately $698 million (excluding the supersedeas bond with respect to the 2019 Notes
litigation discussed in Note 3 of the notes to our consolidated financial statements included in Item 8 of this report),
which may be in the form of additional letters of credit, cash or other acceptable collateral. However, we have substantial
long-term business operations with each of these counterparties, and we may be able to mitigate any collateral requests
through ongoing business commitments and by offsetting amounts that the counterparty owes us. Any posting of
additional collateral consisting of cash or letters of credit, which would reduce availability under our credit facility, will
negatively impact our liquidity.
In addition, during 2016, we may be required to pay up to $439 million in connection with the judgment against
us related to the redemption at par value of our 6.775% Senior Notes due 2019. In connection with our appeal of the
decision by the U.S. District Court for the Southern District of New York regarding the redemption, we posted a
supersedeas bond in the amount of $461 million. For additional information, see Note 3 of the notes to our consolidated
financial statements included in Item 8 of this report.
To supplement our cash flow from operations, we may seek to access the capital markets to refinance a portion
of our outstanding indebtedness and improve our liquidity. We have historically used the debt capital markets, our most
efficient method of raising capital, to supplement our liquidity needs. However, access to funds obtained through the
high-yield debt market, particularly in the energy sector, has been severely constrained by a variety of market factors
that could hinder our ability to raise new capital. We do not believe the high-yield debt market is currently accessible
to us at favorable terms, and our accessibility may not improve during 2016.
We have taken a number of actions to improve our liquidity. We eliminated quarterly cash dividends on our common
stock effective in the 2015 third quarter and suspended payment of dividends on our convertible preferred stock in the
2016 first quarter. In December 2015, we completed private exchanges of approximately $3.9 billion aggregate principal
amount of long-term debt for approximately $2.4 billion aggregate principal amount of newly issued 8.00% Senior
Secured Second Lien Notes due 2022. In September and December 2015, we amended our $4.0 billion revolving
credit facility to provide more flexibility and access to liquidity. In September 2015, we reduced our workforce by
approximately 15% as part of an overall plan to reduce costs and better align our workforce with the needs of our
business and current oil and natural gas commodity prices. In August 2015, we closed the CHK C-T transactions
described above in Strategic Developments. We terminated our secured hedge facility in February 2016 and are in
the process of securing new hedges with the collateral for our revolving credit facility. The collateral for our recently
terminated secured hedge facility is now available for other purposes, including additional collateral under our credit
facility. We are also evaluating additional capital exchanges, asset sales, joint ventures and farmouts to increase our
liquidity and cash flow. Finally, we recently restructured certain of our gathering agreements to improve our per-unit-
gathering rates beginning in 2016, enhance volume growth and satisfy minimum volume commitment obligations.
To add more certainty to our future estimated cash flows by mitigating our downside exposure to lower commodity
prices, as of February, 23, 2016, we have downside price protection, through open swaps, on approximately 56% of
our projected 2016 oil production at an average price of $47.79 per bbl. We have downside price protection, through
open swaps, on approximately 58% of our projected 2016 natural gas production at an average price of $2.84 per mcf.
In addition, in exchange for a higher swap price, we have sold certain call options that allow the counterparty to double
the notional amount on existing fixed-price swaps.
As highlighted above, we have taken measures to mitigate the liquidity concerns facing us in 2016 and beyond,
but there can be no assurance that such measures, even if successfully implemented, will satisfy our needs. Further,
our ability to generate operating cash flow in the current commodity price environment, sell assets, access capital
markets or take any other action to improve our liquidity and manage our debt is subject to the risks discussed above
and the other risks and uncertainties that exist in our industry, some of which we may not be able to anticipate at this
time or control. If commodity prices remain at depressed levels, or if we fail to complete significant asset sales, access
the capital markets on favorable terms or take other actions to improve our liquidity, we may not be able to fund budgeted
capital expenditures or meet our debt service requirements in 2017 and beyond.