Chesapeake Energy (CHK) has no shortage of bad news. Shares of the company are down 77% for the year and the price of its bonds are similarly in free-fall, with some only fetching 40 cents on the dollar. The problems are due to persistently low oil prices and the fallout from the company's weak balance sheet.
Each week seems to bring new reasons for investors to be worried.
How safe is the dividend on its preferred shares?: The decline of Chesapeake Energy's stock has been well documented and its preferred shares are telling a similarly dismal story. Preferred shares are currently trading around $19, down from a high of $93.45 in February, representing an 80% decline.
The company has a hefty debt burden through 2017, which it has taken steps to mitigate. Earlier this month, Chesapeake Energy announced a private offering of up to $1.5 billion in senior secured second-lien notes for existing holders of the company's unsecured notes to exchange. Moody's responded to the offering by downgrading the company's debt to B2 from Ba2. The company also announced in July that it was suspending the dividend on its common shares.
As the company continues to chip away at itself to meet its financial obligations, one has to wonder if the dividend on its preferred shares are safe from the chopping block.
Pennsylvania's Attorney General Sues Chesapeake Energy: If things weren't already bad enough for Chesapeake Energy, the company was slapped with a lawsuit on Wednesday. The Pennsylvania Attorney General's office announced that it was suing Chesapeake Energy. The attorney general accuses Chesapeake Energy of underpaying landowners' royalties and that it "engaged in deceptive conduct" in order to secure fracking licenses in the Marcellus Shale region, which is the largest natural gas field in the country.
While figures have yet to be released, the office of the attorney general said that it seeks restitution for thousands of consumers, civil penalties and legal costs.
Energy prices keep getting lower: Like all companies in the sector, Chesapeake Energy is also contending with persistently low energy prices, which happened to reach new lows this week. The price of crude oil dipped below $37 a barrel following OPEC's decision last week not to cut current production levels. OPEC's decision wasn't a surprise but was a reminder that the sector is going to be contending with lower energy prices for some time.