Chesapeake Energy 2015 Annual Report Download - page 87

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
83
extent that the value of the collateral pledged under the credit facility declines, we may be required to pledge additional
collateral in order to maintain the availability of the commitments thereunder. In February 2016, our secured commodity
hedging facility was terminated. This facility was collateralized with assets that are now unencumbered and for which
we have the flexibility to pledge under our credit facility, if needed. Because of this additional unpledged collateral, we
do not expect availability under our revolving credit facility to be materially reduced as a result of the next borrowing
base redetermination in the 2016 second quarter. However, our borrowing base may be reduced as a result of oil and
natural gas asset sales, a further decline in prices or other factors, some of which are outside of our control. See Note
3 and Note 11 for further discussion of the financial covenants in our revolving credit facility and for discussion of our
secured commodity hedging facility, respectively.
As of December 31, 2015, we had approximately $9.706 billion principal amount of long-term debt outstanding,
of which $381 million matures in March 2016, $1.892 billion matures or can be put to us in 2017 (of which $329 million
matures in January 2017 and the remainder matures or can be put to us after the 2017 first quarter) and $878 million
matures or can be put to us in 2018. See Note 3 for further discussion of our debt obligations, including principal and
carrying amounts of our notes. We expect to draw on our revolving credit facility as early as the 2016 first quarter
primarily due to the principal payment to be made to retire our 3.25% Senior Notes due March 2016 and other 2016
first quarter cash needs. We were undrawn on our revolving credit facility as of December 31, 2015.
As operator of a substantial portion of our oil and natural gas properties under development, we have significant
control and flexibility over the development plan and the associated timing, enabling us to reduce at least a portion of
our capital spending as needed. We have reduced our budgeted 2016 capital expenditures, inclusive of capitalized
interest, to $1.3 - $1.8 billion, a significant reduction from our 2015 capital spending level of $3.6 billion. We currently
plan to use cash flow from operations, cash on hand and our revolving credit facility to fund our capital expenditures
during 2016. We expect to generate additional liquidity with proceeds from potential sales of assets that we determine
do not fit our strategic priorities. Management continues to review operational plans for 2016 and beyond, which could
result in changes to projected capital expenditures and revenues from sales of oil, natural gas and NGL. We closely
monitor the amounts and timing of our sources and uses of funds, particularly as they affect our ability to maintain
compliance with the financial covenants of our revolving credit facility.
Since December 2015, Moody’s Investor Services, Inc. has lowered our senior unsecured credit rating from “Ba3”
to “Caa3”, and Standard & Poor’s Rating Services 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 these 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), 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.
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.