More on Chesapeake’s Possible (Rare) 1.5 Lien Debt Exchange

Last week MDN told you about a creative way Chesapeake Energy may try to refinance some of its massive debts–by using a 1.5 lien debt exchange (see Chesapeake Considers Unusual 1.5 Lien Debt Exchange). Thanks to MDN’s right arm–Chris Acker–we spotted more details about this infrequently used method to refinance outstanding debt. What we learn from a Reuters story is that only six other companies have tried this route over the past few years. About 40 companies tried and failed to execute a 1.5 lien debt exchange last year. One-third of those 40 are expected to file for bankruptcy this year. Which is kind of an ominous indicator when it comes to Chesapeake. In fact, successfully executing a 1.5 lien is, for some credit rating agencies, considered a form of default in and of itself. We hasten to add that Chesapeake has not yet made any kind of announcement that they intend to execute a 1.5 lien debt exchange. The news is being reported by reputable sources they’re considering it–but no decisions have (yet) been made…

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