As if Chesapeake Energy (CHK) doesn't have enough problems, here's one more: Will it be able to cover a $500 million note that comes due next month?
As of the company's third-quarter earnings release, Chesapeake's current ratio is 0.78 -- short-term assets vs. liabilities -- which suggests the company may have difficulty meeting near-term obligations.
Technically, the company has enough cash to cover the note, based on figures Chesapeake provided in a December presentation. It has $1.7 billion in cash and also has access to a $4 billion undrawn credit facility, the covenants of which were recently restructured to reflect challenges posed by low commodity prices.
However, Chesapeake has not been candid about the fact that it needs to address its liquidity and $11.6 billion debt load, which is rated CCC by Standard & Poor's. Also troubling, the company's stock has fallen 83% over the last year and currently trades just over $3.
In January, the company announced it was suspending the dividend on its preferred shares. The move is expected to save the company $170 million annually, which it said it would use to pay debts.
"Given the current commodity price environment for oil, natural gas and natural gas liquids, we believe that redirecting this cash toward debt retirement provides better returns for the company," CEO Doug Lawler said in the statement.
In December, Chesapeake Energy retained the services of Evercore Partners in its private exchange offering, in which creditors of certain existing notes were given the chance to exchange their notes for new 8% senior secured second-lien notes due in 2022. The March 2016 note was not part of the offering and priority was given to notes coming due in 2017 and 2018. On Dec. 31 the company announced via a filing with the SEC that approximately $3.8 billion aggregate principal, or about 41.5%, of existing notes had been validly tendered.
While it has been reported that Evercore is working with Chesapeake Energy as part of a broader effort for the troubled Oklahoma-based company to shore up its balance sheet, the extent of the engagement beyond the exchange offering has not been confirmed.
Given Chesapeake's recent efforts to improve its balance sheet, investors and analysts will no doubt be anxious to see what the company says when it reports earnings on Feb. 24.