Chesapeake Energy to Exit Bankruptcy, Cut $7 Billion in Debt

Chesapeake Energy Corp is set to exit bankruptcy after winning court approval for a reorganization. The company will cut $7 billion in debt in exchange for giving ownership to its senior creditors, including Franklin Resources Inc.

The energy company initially filed for bankruptcy in June after months of financial distress. Its value has since increased and is worth $5.13 billion far above estimates, according to US Bankruptcy Judge David Jones. During Chesapeake’s trial in the US bankruptcy court in Houston, creditors offered different estimates of the company’s value. However, Judge Jones’ figure was higher by $1 billion from the mid-point range the company recently offered.

There were some objections to the move by other lower-ranking creditors and unsecured bondholders who complained that the senior creditors were getting Chesapeake at a discounted price barely six months after the company refinanced its debts.

The bankruptcy judge rejected all complaints and last-minute reorganization proposal by other creditors including Owl Creek Asset Management and Jefferies Financial Group Inc. among several others. The opposition was led by a committee representing unsecured bondholders, Chesapeake suppliers, and lower-ranking creditors whose money made up $4.4 billion of the total debt.

The opposition group demanded to be given more than a few pennies on what they were being offered. They also sought to file a lawsuit against Chesapeake and Franklin Resources Inc. for undertaking refinance actions a few months before the energy company declared bankruptcy. Both Chesapeake and Franklin Resources Inc. have declined to comment on the matter.

“Management has dealt with an incredibly difficult set of problems in an unprecedented time,” Jones said. “I can’t imagine sitting on a board or being in management given the events over the last three years.”

When current Chief Executive Officer Doug Lawler took over Chesapeake in 2013, the company owed creditors more than $20 billion. He helped beat the figure down to nearly $9.2 billion in funded debt up until when the company declared bankruptcy last year.

The unsecured creditors have proceeded to prepare their lawsuit against Chesapeake, in it they accused the company of undertaking two refinancing deals that only benefitted Franklin Resources Inc. and some other lenders, few months before declaring bankruptcy. This was at the expense of low-ranking debt holders.

Two refinancing transactions were done: the first refinanced $1.5 billion in debt owed by a unit of the company that “infected” the whole company; while the second converted $2.2 billion of unsecured debt into secured debt, with higher interest rate.

Judge Jones said the accusations carried no weight and there was “zero evidence in the record to support” the claims. The unsecured creditors were then denied the right to argue those transactions.