Moody’s Warns Chesapeake Must Sell $7B in Assets This Year

The venerable U.S. credit rating service Moody’s Investor Service said yesterday that Chesapeake will need to sell a minimum of $7 billion in assets this year in order to avoid a credit rating downgrade by their service—and even $7 billion may not be enough.

Moody’s current credit rating for Chesapeake is Ba2, which is considered “speculative grade” (not investment grade) and “judged to have speculative elements and a significant credit risk.” The lower a company’s credit rating goes, the harder (and more expensive) it is to borrow money.

Chesapeake Energy Corp, the U.S. oil and gas company facing a funding shortfall this year and next, must sell at least $7 billion in assets to avoid breaching a loan covenant, analysts at Moody’s Investors Service said on Thursday.

Decade-low natural gas prices and hefty spending have left Chesapeake to fill a shortfall that Moody’s estimates at nearly $6 billion in 2013. The company is also facing corporate governance issues and some of its largest investors are calling for major changes.

"Even $7 billion in asset sales could place Chesapeake’s covenant compliance for its revolving credit facility in some doubt and the company would still face a significant funding gap in 2013," Moody’s said in a note.

The company would "gain far more covenant headroom" with the sale of an additional $10 billion in asset sales this year, the analysts said.

Any sales total below $7 billion will likely lead to a credit rating downgrade from its current Ba2 rating, Moody’s said.*

*Reuters (May 31, 2012) – Chesapeake must sell $7 billion in assets: Moody’s