Chesapeake Energy completes exchange for 8 1/8% notes

New York, Jan. 14 - Chesapeake Energy Corp.(Ba3/BB-) completed its previously announced offer to exchange two different series of new notes for its outstanding 8 1/8% senior notes due 2011, which expired as scheduled at 5 p.m. ET on Jan. 12.

As of that expiration, it had received valid tenders from the holders of $458.5 million principal amount of the existing notes, up from the $457.1 million which had been tendered by the extended early tender deadline of 5 p.m. ET on Jan. 9.

Of the $458.5 million of notes tendered by the Jan. 12 deadline, $71.5 million were tendered in exchange for new 7¾% senior notes due 2015 - unchanged from the amount tendered by the Jan. 9 early tender deadline - and $387 million were tendered in exchange for new 6 7/8% senior notes due 2016, up from $385.6 million at the early tender deadline.

Noteholders who tendered by the Jan. 9 early tender deadline will receive a $10 per $1,000 principal amount early tender cash payment in addition to their notes. Payment for all tendered notes was expected to be made on Jan. 14.

As previously announced, Chesapeake said on Dec. 1 that it would offer to exchange new debt for up to $500 million of the outstanding the 8 1/8% notes, with holders having the option to receive either the new 7¾% notes or the new 6 7/8% notes in exchange for the existing 8 1/8% notes.

Specifically, Chesapeake said it would issue $1,033.23 principal amount of 7¾% notes or $1,107.68 principal amount of 6 7/8% notes per $1,000 principal amount of the 8 1/8% notes. Accrued and unpaid interest on the 8 1/8% notes would be settled by adjusting the principal amount of the new notes to be issued.

Chesapeake originally set 5 p.m. ET on Dec. 12 as the early tender deadline and said that the exchange offer would expire at midnight ET on Dec. 29.

Both deadlines were subsequently pushed back, with the company announcing on Dec. 24 that it had extended the early tender deadline, as well as the deadline for withdrawing any previously tendered notes, to 5 p.m. ET on Jan. 9, while the exchange offer itself was extended to 5 p.m. ET on Jan. 12, with settlement expected on Jan. 14. Chesapeake said that it had extended the offer to give noteholders an opportunity to review information related to its planned $510 million acquisition of certain oil and natural gas assets, which were announced on Dec. 22.

It said that holders would not have to choose the same option for all the 2011 notes that they might tender. If a total of more than $500 million of the 2011 notes was validly tendered and not withdrawn, the company said it would accept tenders from holders on a pro rata basis.

The company said the 7¾% notes to be issued in the offer would be additional notes of the same series as Chesapeake's already outstanding 7¾% senior notes due 2015, originally issued on Dec. 20, 2002 and of which $236.7 million principal amount is currently outstanding. The 6 7/8% notes would be issued as additional notes of the same series as the company's 6 7/8% senior notes due 2016, $200 million of which were which were issued on Nov. 26.

The company said the exchange offer would be subject to certain customary conditions, but not a minimum tender condition.

On Dec. 24, Chesapeake announced a further condition - that the offer would only be completed it if first sells at least $225 million gross proceeds of common stock. On Jan. 8, Chesapeake said that it had priced a public offering of 20 million shares of its common stock at $13.51 per share, for gross proceeds of $270.2 million, and had granted the underwriters a 30-day greenshoe option to purchase up to 3 million additional shares to cover over-allotments, which could bring total gross proceeds to as much as $310.73 million.

Banc of America Securities LLC (contact High Yield Special Products at 888 292-0070 or collect at 704 388-4813), Deutsche Bank Securities (contact High Yield Capital Markets collect at 212 250-7466) and Lehman Brothers (800 438-3242 or collect at 212 528-7581) were joint lead dealer managers. The information agent was D.F. King & Co. (800 431-9633 or collect at 212 269-5550).

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