Stressed Out: Chesapeake Energy Affiliate Cuts Distribution

 | Feb 04, 2016 | 11:27 AM EST
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This article is part of a Real Money series on 20 distressed companies investors should consider adding to their distressed watch list.

In life and business, it matters who your friends are. On Thursday, Chesapeake Granite Wash Trust (CHKR), an affiliate of Chesapeake Energy (CHK), announced that it was cutting the quarterly distribution on its common units for the quarter ending Dec. 31 to $0.2195, which is down 32% from the distribution it paid in the third quarter. 

The distribution decrease is due to lower-than-anticipated sales and pricing realized in the three-month period ending Nov. 30, the company said in its filing with the SEC.

Quarterly income available for the distribution was $0.1646, which falls below the trust's subordination threshold of $0.56. This means that Chesapeake Energy, the holder of the subordinated shares of the trust, will not receive a distribution this quarter. In the trust's prospectus, which was filed with the SEC on Nov. 14, 2011, the target distribution for subordinate unit holders for the quarter ending Dec. 31, 2015 was $0.70.

Chesapeake Granite Wash Trust was formed by Chesapeake Energy in 2011. Unit holders of the trust own royalty interests in oil, natural gas liquids, and natural gas wells in Oklahoma. Needless to say, record-low oil prices coupled with low natural gas prices have made the investment less attractive. Shares of the trust, which trade on the New York Stock Exchange, are down 56% over the last year and are now trading just above $3.

Thursday's distribution cut is another reminder of Chesapeake Energy's tenuous situation. Chesapeake Energy suspended the dividend on its preferred shares in January and plans to use the $170 million in savings to service its debt. In July, the company cut the its common stock dividend.

For more on Real Money's 20 distressed companies to watch:

Stressed Out: Introducing Real Money's Distressed Index

Stressed Out & Thanks for Nothing: J.P. Morgan Says 'No Más' to Petrobras

Stressed Out: 3 Best and Worst Steel Stocks to Watch as Metal Prices Rally

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