Bankruptcy May Be On the Table for Chesapeake Energy

Chesapeake Energy Corp. announced in a filing this week that bankruptcy is on the table for the company after it posted a net loss of about $8.3 billion for the first quarter of 2020.

The loss was larger than the revised $7.8 billion value of its assets after the impairment, the company’s filing on Monday showed.

The coronavirus pandemic has sent commodity prices tumbling and with a weak demand for oil, things have been tough for the Oklahoma City energy company.

Chesapeake also notified regulators and investors that its board had cut some bonuses for senior executives, while also creating a quarterly bonus incentives program for its rank and file employees.

In its filing with the U.S. Securities and Exchange Commission, the company also said that it had to take a non-cash impairment charge on its assets of about $8.5 billion during the January through March period.

“If the current depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant and an expected significant reduction in our borrowing base in our scheduled determination, then our liquidity and our ability to comply with our financial covenants during the next 12 months will be adversely affected,” the company said in its regulatory filing.

Chesapeake expects to violate those financial covenants, which require it to limit its debt to 4-to-1 ratio of debt to consolidated earnings before interest, taxes, depreciation, amortization and exploration, by October.

Next to bankruptcy, Chesapeake is also considering taking itself private.

“However, there can be no assurances that the company will be able to successfully restructure its indebtedness, improve its financial position or complete any strategic transactions.”

“As a result of these uncertainties and the likelihood of a restructuring or reorganization, management has concluded that there is substantial doubt about the company’s ability to continue as a going concern.”

Disclaimer: We have no position in Chesapeake Energy Corporation (NYSE: CHK) and have not been compensated for this article.