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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