Please ensure Javascript is enabled for purposes of website accessibility

Report: Chesapeake Energy is on the Verge of Filing for Bankruptcy

By Matthew DiLallo – Jun 16, 2020 at 11:08AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The deeply indebted driller could file as soon as Thursday.

Chesapeake Energy (CHKA.Q) is preparing to file for bankruptcy within the next week, according to a report by Reuters. The company could file as soon as Thursday, though it's negotiating with creditors, which could push the timing into next week.

According to the report, Chesapeake is putting the finishing touches on about $900 million of debtor-in-possession financing, which will support its operations during the bankruptcy process. The company is in talks with other creditors to "roll-up" some of its existing debt into that package, which could bring the total to around $2 billion.

An oil pump with a red moon above it.

Image source: Getty Images.

The company is also working with creditors on a plan that would eliminate a substantial portion of its burdensome $9 billion debt load in exchange for an equity infusion. Those creditors, which include Franklin Resources (BEN 4.37%), would take control of the company in exchange for eliminating more than $7 billion of debt, according to the current plan that's still under negotiation. Franklin Resources hired a law firm to assist it in negotiating with Chesapeake earlier this year to help it preserve as much of its investment as possible.

Depending on the outcome of these negotiations, Chesapeake Energy will likely transfer a substantial portion -- if not all -- of its equity to creditors like Franklin Resources. That would either significantly dilute or completely wipe out its existing shareholders, leaving them without much likelihood of recovery even if oil prices stage a significant future rebound.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Chesapeake Energy Corporation Stock Quote
Chesapeake Energy Corporation
Franklin Resources, Inc. Stock Quote
Franklin Resources, Inc.
$23.42 (4.37%) $0.98

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.