{"id":89633,"date":"2024-02-05T06:44:43","date_gmt":"2024-02-05T11:44:43","guid":{"rendered":"https:\/\/ifintechworld.com\/?p=89633"},"modified":"2024-02-05T06:44:45","modified_gmt":"2024-02-05T11:44:45","slug":"chesapeake-and-southwestern-bonds-rally-on-merger-news-as-fitch-says-combined-entity-may-get-investment-grade-rating","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=89633","title":{"rendered":"Chesapeake and Southwestern bonds rally on merger news as Fitch says combined entity may get investment-grade rating"},"content":{"rendered":"
\n

Bonds issued by Chesapeake Energy Corp. and Southwestern Energy Co. were rallying on Thursday after the companies sealed their expected $7.4 billion all-stock merger.<\/p>\n

The news was welcomed by Fitch Ratings, which placed both companies\u2019 BB-plus long-term issuer default ratings on Rating Watch Positive, meaning it could upgrade them in the medium term. <\/p>\n

\n

The BB-plus rating is a single notch into speculative-grade or junk status, so an upgrade would push the credits back into investment grade. Investment-grade issuers pay lower interest rates than issuers who are deemed to be less creditworthy, whose investors demand greater compensation for risk.<\/p>\n

\u201cThe scale of the combined entity is commensurate with an investment-grade rating,\u201d Fitch said in a statement. \u201cCombined reserves will approach 32 trillion feet of natural gas equivalent (Tcfe) and production will approach 7.9 billion cubic feet of natural gas equivalent a day (bcfe\/d), making it the third-largest public global natural gas producer.\u201d<\/p>\n

Moody\u2019s later followed suit by revising the outlook on its junk rating of Ba1 on each issuer to positive. <\/p>\n

\u201cThe positive outlook points to the potential for an upgrade to Baa3 if the company can progress toward delivering on its debt reduction target and achieving synergies following the combination, and reduce its reserve replacement costs to generate more competitive returns on investment at mid-cycle natural gas prices,\u201d Moody\u2019s Senior Credit Officer Amol Joshi said in a statement.<\/p>\n

Chesapeake
\n CHK,
\n -0.44%<\/bg-quote>
\n will have 650,000 net acres in the Haynesville Shale and 1.2 million net acres in Appalachia, equal to 15 years of drilling inventory at the expected production levels.<\/p>\n

Chesapeake will assume Southwestern\u2019s
\n SWN,
\n +0.16%<\/bg-quote>
\n debt after closing the transaction. Fitch expects the combined entity to maintain a sub 1.5x Ebitda (earnings before interest, taxes, depreciation and amortization) leverage after closing, strong liquidity and a back-end maturity profile.<\/p>\n

The ratings agency is expecting to resolve the rating watch once the deal closes, which may take longer than six months, it added.<\/p>\n

The companies\u2019 outstanding bonds have been rallying for at least the last week, as the following chart from data-solutions provider BondCliQ Media Services shows. The Wall Street Journal reported on Jan. 5\u00a0that a merger was imminent.<\/p>\n

<\/p>\n

<\/p>\n

<\/p>\n
<\/div>\n<\/figure><\/div>\n

The companies have also seen net buying over the period, as the following chart shows, along with the volume breakdown by customer type.<\/p>\n

<\/p>\n

<\/p>\n

<\/p>\n
\n \"\"\n <\/div>\n<\/figure><\/div>\n

The next chart shows the debt by maturity bucket, with the bulk of the bonds issued by both companies in the five-year range. <\/p>\n

<\/p>\n

<\/p>\n

<\/p>\n
\n \"\"\n <\/div>\n<\/figure><\/div>\n

The deal announcement comes three years after Oklahoma-based Chesapeake emerged from bankruptcy on Feb. 9, 2021. The storied company, which was at the center of the fracking boom, had\u00a0filed for chapter 11 protection in June 2020, as the COVID pandemic made Chesapeake\u2019s debt load unbearable amid falling natural-gas prices.<\/p>\n

It also comes during a wave of consolidation in the energy sector.<\/p>\n

In the past month, Occidental Petroleum Corp.
\n OXY,
\n -0.49%<\/bg-quote>
\n announced a $12 billion purchase of CrownRock LP,\u00a0and APA Corp.
\n APA,
\n -1.82%<\/bg-quote>
\n entered a deal to buy Callon Petroleum Co.
\n CPE,
\n -1.54%<\/bg-quote>,<\/span>
\n \u00a0valued at $4.5 billion.<\/p>\n

The companies\u2019 stocks, meanwhile, were mixed, with Chesapeake last up 4.8% and Southwestern down 0.6%.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Bonds issued by Chesapeake Energy Corp. and Southwestern Energy Co. were rallying on Thursday after the companies sealed their expected $7.4 billion all-stock merger. The news was welcomed by Fitch Ratings, which placed both companies\u2019 BB-plus long-term issuer default ratings on Rating Watch Positive, meaning it could upgrade them in the medium term. The BB-plus […]<\/p>\n","protected":false},"author":1,"featured_media":89634,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-89633","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nChesapeake and Southwestern bonds rally on merger news as Fitch says combined entity may get investment-grade rating | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Bonds issued by Chesapeake Energy Corp. and Southwestern Energy Co. were rallying on Thursday after the companies sealed their expected $7.4 billion\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=89633\" \/>\n<meta property=\"og:locale\" content=\"en_US\" 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