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Reuters: Chesapeake CEO arranged new $450 million loan from company financier

BY JENNIFER ABLAN Reuters Modified: May 8, 2012 at 8:04 pm •  Published: May 8, 2012
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In the weeks before Chesapeake Energy CEO Aubrey McClendon was stripped of his chairmanship over his personal financial dealings, he arranged an additional $450 million loan from a longtime backer, according to a person familiar with the transaction.

That loan, previously undisclosed, was made by investment-management firm EIG Global Energy Partners, which was at the same time helping arrange a major $1.25 billion round of financing for Chesapeake itself.

The new loan brings the energy executive's total financing from EIG since 2010 to $1.33 billion and his current balance due to $1.1 billion, this person said. It was secured by McClendon's personal stakes in wells that have yet to be drilled by Chesapeake — and by his own life-insurance policy.

A spokesman for McClendon declined to comment; a spokesman for Chesapeake didn't respond to a request for comment.

The latest insight into McClendon's personal financial deals comes in the wake of an April 18 Reuters investigation that found McClendon had borrowed heavily against his interests in wells owned by Chesapeake, mostly from EIG.

Last week, Reuters reported that McClendon had co-owned and actively invested in a $200 million hedge fund that bought and sold the same commodities produced by Chesapeake.

An outcry over potential conflicts of interest in the loans prompted inquiries by the Securities and Exchange Commission and the Internal Revenue Service. It also spurred Chesapeake's board on May 1 to remove McClendon as chairman (though not as chief executive) and to declare an early end to a controversial perk at the center of the borrowings.

All told, McClendon has taken out loans worth $1.55 billion since 2009 from EIG and other lenders to fund his participation in Chesapeake's Founders Well Participation Program. That perk enables him to receive a stake of up to 2.5 percent in all the wells Chesapeake drills in return for shouldering the same percentage of the wells' costs.

The latest McClendon loan was arranged in late March through a McClendon-controlled company called Pelican Energy LLC, which was formed on March 6.

The deal was initially intended to be significantly larger, up to $750 million, said the person familiar with the transaction. It was scaled back last week after the Chesapeake board announced the early end to the well-stake perk, which is now slated to conclude in June 2014.

The newest financing for McClendon closed shortly before EIG joined with other investment firms and hedge funds, such as TPG Capital and Magnetar Capital, in purchasing preferred shares in a newly formed Chesapeake subsidiary that has an interest in some of the company's wells. EIG invested $100 million in that deal, called CHK Cleveland Tonkawa, which raised $1.25 billion for Chesapeake.

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