Chesapeake Energy Corp. has amended its loan agreement in a move that gives the company more flexibility in repaying its debt, according to a regulatory filling Monday.
The amendment does not increase the amount the company can borrow, but it relaxes the terms of when and how much it must repay.
“The amended loan agreement should give Chesapeake some added financial flexibility,” said Fadel Gheit, an analyst with Oppenheimer in New York.
Chesapeake's previous loan agreement stated that the company's debt cannot exceed four times its lagging 12-month earnings before interest, taxes, depreciation and amortization (EBITDA).
The new agreement extends the debt-to-EBITDA ratio to 6-to-1 effective Sept. 30. The ratio gradually drops to 4.25-to-1 by Sept. 30, 2013.
Chesapeake has previously disclosed in regulatory filings that too much debt could trigger a domino effect that could cause its revolving credit facility and “a significant portion of our senior notes indebtedness” to be “declared immediately due and payable.”
Ratings agency S&P in May downgraded the company's debt in part because of concerns over the requirements.
“Due to the combination of anticipated producing asset sales decreasing EBITDA, along with lower natural gas prices likely causing upcoming quarters' EBITDA to be below last year's counterparts, we believe the ratio has the potential to approach, if not exceed, 4x (the threshold) in the third or fourth quarter of this year,” S&P stated in May.
Chesapeake officials had no further comment Monday.