Chesapeake Energy’s (NYSE:CHK) shares and bonds plunged today after CEO Doug Lawler described a risky survival strategy predicated on a $500M divestiture program and a reverse stock split.

“Our price target on this is zero,” says Tudor Pickering Holt director of exploration and production Sameer Panjwani.  “Everyone is concerned with the debt load here. You either have to sell assets, which in this market is pretty tough to do, or you have to generate free cash flow, which they’re not doing well in this environment. They’re backed into a corner.”

Chesapeake shares sank 30.5% to $0.31/share, the lowest close since the company went public in 1993.

At the same time, the company’s second-lien bonds due in 2025 fell to ~$0.66 on the dollar, well below their face value of 100 when sold in December.

Credit derivatives traders are pricing in the likelihood of a Chesapeake default in the next five years, with the cost to insure $10M of debt in the credit-default swaps market surging to ~$6.5M upfront and $500K annually.

Chesapeake has $209M of bonds coming due in August, out of a $9B-plus total debt load.


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