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Debt (Notes) | 3 Months Ended
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Mar. 31, 2017
Debt Disclosure [Abstract] |
Debt Disclosure | Debt Our long-term debt consisted of the following as of March 31, 2017 and December 31, 2016:
|  | March 31, 2017 |  | December 31, 2016
|  | Principal Amount |  | Carrying Amount |  | Principal Amount |  | Carrying Amount
|  | ($ in millions)
Term loan due 2021 |  | $ | 1,500 |  |  | $ | 1,500 |  |  | $ | 1,500 |  |  | $ | 1,500 |
6.25% euro-denominated senior notes due 2017(a) |  | — |  |  | — |  |  | 258 |  |  | 258 |
6.5% senior notes due 2017 |  | — |  |  | — |  |  | 134 |  |  | 134 |
7.25% senior notes due 2018 |  | 46 |  |  | 46 |  |  | 64 |  |  | 64 |
Floating rate senior notes due 2019 |  | 380 |  |  | 380 |  |  | 380 |  |  | 380 |
6.625% senior notes due 2020 |  | 572 |  |  | 572 |  |  | 780 |  |  | 780 |
6.875% senior notes due 2020 |  | 279 |  |  | 279 |  |  | 279 |  |  | 279 |
6.125% senior notes due 2021 |  | 550 |  |  | 550 |  |  | 550 |  |  | 550 |
5.375% senior notes due 2021 |  | 270 |  |  | 270 |  |  | 270 |  |  | 270 |
4.875% senior notes due 2022 |  | 451 |  |  | 451 |  |  | 451 |  |  | 451 |
8.00% senior secured second lien notes due 2022(b) |  | 2,419 |  |  | 3,368 |  |  | 2,419 |  |  | 3,409 |
5.75% senior notes due 2023 |  | 338 |  |  | 338 |  |  | 338 |  |  | 338 |
8.00% senior notes due 2025 |  | 1,000 |  |  | 1,000 |  |  | 1,000 |  |  | 1,000 |
5.5% convertible senior notes due 2026(c)(e) |  | 1,250 |  |  | 818 |  |  | 1,250 |  |  | 811 |
2.75% contingent convertible senior notes due 2035(d) |  | 2 |  |  | 2 |  |  | 2 |  |  | 2 |
2.5% contingent convertible senior notes due 2037(d)(e) |  | 15 |  |  | 15 |  |  | 114 |  |  | 112 |
2.25% contingent convertible senior notes due 2038(d)(e) |  | 9 |  |  | 8 |  |  | 200 |  |  | 180 |
Revolving credit facility |  | — |  |  | — |  |  | — |  |  | — |
Debt issuance costs |  | — |  |  | (60 | ) |  | — |  |  | (64 | )
Discount on senior notes |  | — |  |  | (16 | ) |  | — |  |  | (16 | )
Interest rate derivatives(f) |  | — |  |  | 3 |  |  | — |  |  | 3 |
Total debt, net |  | 9,081 |  |  | 9,524 |  |  | 9,989 |  |  | 10,441 |
Less current maturities of long-term debt, net(g) |  | (15 | ) |  | (15 | ) |  | (506 | ) |  | (503 | )
Total long-term debt, net |  | $ | 9,066 |  |  | $ | 9,509 |  |  | $ | 9,483 |  |  | $ | 9,938 |
___________________________________________
(a) | The principal and carrying amounts shown are based on the exchange rate of $1.0517 to €1.00 as of December 31, 2016. See Foreign Currency Derivatives in Note 8 for information on our related foreign currency derivatives.
(b) | The carrying amounts as of March 31, 2017 and December 31, 2016, include premium amounts of $949 million and $990 million, respectively, associated with a troubled debt restructuring. The premium is being amortized based on the effective yield method.
(c) | The conversion and redemption provisions of our convertible senior notes are as follows:
Optional Conversion by Holders. Prior to maturity under certain circumstances and at the holder’s option, the notes are convertible into cash, our common stock, or a combination of cash and common stock, at our election. One triggering circumstance is when the price of our common stock exceeds a threshold amount during a specified period in a fiscal quarter. Convertibility based on common stock price is measured quarterly. During the first quarter of 2017, the price of our common stock was below the threshold level and, as a result, the holders do not have the option to convert their notes in the second quarter of 2017 under this provision. The notes are also convertible, at the holder’s option, during specified five-day periods if the trading price of the notes is below certain levels determined by reference to the trading price of our common stock. The notes were not convertible under this provision during the Current Quarter. Upon conversion of a convertible senior note, the holder will receive cash, common stock or a combination of cash and common stock, at our election, according to the conversion rate specified in the indenture. The common stock price conversion threshold amount for the convertible senior notes is 130% of the conversion price. Optional Redemption by the Company. We may redeem the convertible senior notes for cash on or after September 15, 2019, if the price of our common stock exceeds 130% of the conversion price during a specified period at a redemption price of 100% of the principal amount of the notes. Holders’ Demand Repurchase Rights. The holders of our convertible senior notes may require us to repurchase, in cash, all or a portion of their notes at 100% of the principal amount of the notes upon certain fundamental changes.
(d) | The repurchase, conversion, contingent interest and redemption provisions of our contingent convertible senior notes are as follows:
Holders’ Demand Repurchase Rights. The holders of our contingent convertible senior notes may require us to repurchase, in cash, all or a portion of their notes at 100% of the principal amount of the notes on any of four dates that are five, ten, fifteen and twenty years before the maturity date and upon certain fundamental changes. Optional Conversion by Holders. At the holder’s option, prior to maturity under certain circumstances, the notes are convertible into cash and, if applicable, our common stock using a net share settlement process. One triggering circumstance is when the price of our common stock exceeds a threshold amount during a specified period within a fiscal quarter. Convertibility based on common stock price is measured quarterly. During the specified period in the Current Quarter, the price of our common stock was below the threshold level for each series of the contingent convertible senior notes and, as a result, the holders do not have the option to convert their notes into cash or common stock in the second quarter of 2017 under this provision. The notes are also convertible, at the holder’s option, during specified five-day periods if the trading price of the notes is below certain levels determined by reference to the trading price of our common stock. The notes were not convertible under this provision during the Current Quarter and the Prior Quarter. In general, upon conversion of a contingent convertible senior note, the holder will receive cash equal to the principal amount of the note and common stock for the note’s conversion value in excess of the principal amount. Contingent Interest. We will pay contingent interest on the contingent convertible senior notes after they have been outstanding at least ten years during certain periods if the average trading price of the notes exceeds the threshold defined in the indenture. The holders’ demand repurchase dates, the common stock price conversion threshold amounts (as adjusted to give effect to cash dividends on our common stock) and the ending date of the first six-month period in which contingent interest may be payable for the contingent convertible senior notes are as follows:
Contingent Convertible Senior Notes |  | Holders' Demand Repurchase Dates |  | Common Stock Price Conversion Thresholds |  | Contingent Interest First Payable (if applicable)
2.75% due 2035 |  | November 15, 2020, 2025, 2030 |  | $ | 45.02 |  |  | May 14, 2016
2.5% due 2037 |  | May 15, 2017, 2022, 2027, 2032 |  | $ | 59.44 |  |  | November 14, 2017
2.25% due 2038 |  | December 15, 2018, 2023, 2028, 2033 |  | $ | 100.20 |  |  | June 14, 2019
Optional Redemption by the Company. We may redeem the contingent convertible senior notes once they have been outstanding for ten years at a redemption price of 100% of the principal amount of the notes, payable in cash. In addition, we may redeem our 2.75% Contingent Convertible Senior Notes due 2035 at any time.
(e) | The carrying amounts as of March 31, 2017 and December 31, 2016, are reflected net of discounts of $433 million and $461 million, respectively, associated with the equity component of our convertible and contingent convertible senior notes. This amount is being amortized based on the effective yield method through the first demand repurchase date as applicable.
(f) | See Interest Rate Derivatives in Note 8 for further discussion related to these instruments.
(g) | As of March 31, 2017, current maturities of long-term debt, net includes our 2.5% Contingent Convertible Senior Notes due 2037 (2037 Notes). As discussed in footnote (d) above, the holders of our 2037 Notes could exercise their individual demand repurchase rights on May 15, 2017, which would require us to repurchase all or a portion of the principal amount of the notes.
Term Loan Facility We have a secured five-year term loan facility in aggregate principal amount of $1.5 billion. Our obligations under the facility are unconditionally guaranteed on a joint and several basis by the same subsidiaries that guarantee our revolving credit facility, second lien notes and senior notes and are secured by first-priority liens on the same collateral securing our revolving credit facility (with a position in the collateral proceeds waterfall junior to the revolving credit facility). The term loan bears interest at a rate of London Interbank Offered Rate (LIBOR) plus 7.50% per annum, subject to a 1.00% LIBOR floor, or the Alternative Base Rate (ABR) plus 6.50% per annum, subject to a 2.00% ABR floor, at our option. The term loan matures in August 2021 and voluntary prepayments are subject to a make-whole premium prior to the second anniversary of the closing of the term loan, a premium to par of 4.25% from the second anniversary until but excluding the third anniversary, a premium to par of 2.125% from the third anniversary until but excluding the fourth anniversary and at par beginning on the fourth anniversary. The term loan may be subject to mandatory prepayments and offers to purchase with net cash proceeds of certain issuances of debt, certain asset sales and other dispositions of collateral and upon a change of control. Senior Secured Second Lien Notes Our second lien notes are secured second lien obligations and are effectively junior to our current and future secured first lien indebtedness, including indebtedness incurred under our revolving credit facility and our term loan facility, to the extent of the value of the collateral securing such indebtedness, effectively senior to all of our existing and future unsecured indebtedness, including our outstanding senior notes, to the extent of the value of the collateral, and senior to any future subordinated indebtedness that we may incur. We have the option to redeem the Second Lien Notes, in whole or in part, at specified make-whole or redemption prices. Our second lien notes are governed by an indenture containing covenants that may limit our ability and our subsidiaries’ ability to create liens securing certain indebtedness, enter into certain sale-leaseback transactions, consolidate, merge or transfer assets and dispose of certain collateral and use proceeds from dispositions of certain collateral. As a holding company, Chesapeake owns no operating assets and has no significant operations independent of its subsidiaries. Chesapeake’s obligations under the second lien notes are fully and unconditionally guaranteed, jointly and severally, by certain of our direct and indirect wholly owned subsidiaries. In December 2015, certain of the existing notes that were exchanged for the second lien notes were accounted for as a troubled debt restructuring (TDR). For the exchanges classified as a TDR, if the future undiscounted cash flows of the newly issued debt are less than the net carrying value of the original debt, a gain is recorded for the difference and the carrying value of the newly issued debt is adjusted to the future undiscounted cash flow amount and no future interest expense is recorded. All future interest payments on the newly issued debt reduce the carrying value. Senior Notes, Contingent Convertible Senior Notes and Convertible Senior Notes Chesapeake Energy Corporation is a holding company and has no independent assets or operations. Our obligations under our outstanding senior notes and convertible senior notes are fully and unconditionally guaranteed, jointly and severally, by certain of our 100% owned subsidiaries on a senior unsecured basis. Our non-guarantor subsidiaries are minor and, as such, we have not included condensed consolidating financial information in the notes to our condensed consolidated financial statements. We are required to account for the liability and equity components of our convertible debt instruments separately and to reflect interest expense through the first demand repurchase date, as applicable, at the interest rate of similar nonconvertible debt at the time of issuance. The applicable rates for our 2.5% Contingent Convertible Senior Notes due 2037, our 2.25% Contingent Convertible Senior Notes due 2038 and our 5.5% Convertible Senior Notes due 2026 are 8.0%, 8.0% and 11.5%, respectively. In the Current Quarter, we retired $908 million principal amount of our outstanding senior notes and contingent convertible notes through purchases in the open market, tender offers or repayment upon maturity for $982 million. Included in these retirements is the maturity of our 6.25% Euro-denominated Senior Notes due 2017, which were carried at $258 million based on the December 31, 2016 exchange rate of $1.0517 to €1.00 and the corresponding cross currency swap. See Foreign Currency Derivatives in Note 8 for further information. For the open market repurchases and tender offers, we recorded an aggregate loss of approximately $7 million. In the Prior Quarter, we retired $558 million principal amount of our outstanding senior notes and contingent convertible notes through purchases in the open market, tender offers or repayment upon maturity for $472 million. Additionally, we privately negotiated an exchange of approximately $105 million principal amount of our outstanding senior notes and contingent convertible senior notes for 17,255,347 common shares. We recorded an aggregate gain of approximately $100 million associated with these repurchases and exchanges. Revolving Credit Facility We have a $4.0 billion senior secured revolving credit facility that matures in December 2019. As of March 31, 2017, we had no outstanding borrowings under the revolving credit facility and had used $697 million of the revolving credit facility for various letters of credit (including the $461 million supersedeas bond with respect to the 2019 Notes litigation discussed in Note 4). As discussed in Note 4, on April 28, 2017, the Company paid $441 million as a result of the 2019 Notes litigation with cash on hand and borrowings under the revolving credit facility and the related supersedeas bond was released. The terms of the revolving credit facility include covenants limiting, among other things, our ability to incur additional indebtedness, make investments or loans, create liens, consummate mergers and similar fundamental changes, make restricted payments, make investments in unrestricted subsidiaries and enter into transactions with affiliates. We were in compliance with all applicable financial covenants under the agreement as of March 31, 2017. During 2016, we entered into the third amendment to our revolving credit facility. Pursuant to the amendment, our borrowing base was reaffirmed in the amount of $4.0 billion and the next scheduled borrowing base redetermination review was postponed until June 15, 2017, with the consenting lenders agreeing not to exercise their interim redetermination right prior to that date. As a result of certain asset sales and certain other sales of collateral since the date of the most recent amendment, our borrowing base was reduced to $3.8 billion in the fourth quarter of 2016. Our borrowing base may be further reduced if we dispose of a certain percentage of the value of collateral securing the facility. The amendment also granted temporary financial covenant relief, with the revolving credit facility’s existing first lien secured leverage ratio and net debt to capitalization ratio suspended until September 30, 2017 and the interest coverage ratio maintenance covenant reduced as noted below. In addition, we agreed to grant liens and security interests on a majority of our assets, as well as maintain a minimum liquidity amount (defined as cash and cash equivalents and availability under our revolving credit facility) of $500 million until the suspension of the existing maintenance covenants ends. The amendment reduced the interest coverage ratio from 1.1 to 1.0 to 0.65 to 1.0 through the first quarter of 2017, after which it will increase to 0.70 to 1.0 for the second quarter of 2017, 1.2 to 1.0 for the third quarter of 2017 and 1.25 to 1.0 thereafter. The amendment also includes a collateral value coverage test whereby if the collateral value coverage ratio, tested as of March 31, 2017, falls below 1.25 to 1.0, our borrowing ability will be reduced in order to satisfy such ratio. Our collateral value exceeded the 1.25 to 1.0 threshold as of March 31, 2017. The amendment also gives us the ability to incur up to $2.5 billion of first lien indebtedness secured on a pari passu basis with the existing obligations under the credit agreement, subject to a position in the collateral proceeds waterfall in favor of the revolving lenders and affiliated hedge providers and the other limitations on junior lien debt set forth in the credit agreement. After taking into account the term loan, the amount of additional first lien indebtedness permitted by the revolving credit facility is $1.0 billion. Fair Value of Debt We estimate the fair value of our senior notes based on the market value of our publicly traded debt as determined based on the yield of our senior notes (Level 1). The fair value of all other debt is based on a market approach using estimates provided by an independent investment financial data services firm (Level 2). Fair value is compared to the carrying value, excluding the impact of interest rate derivatives, in the table below.
|  | March 31, 2017 |  | December 31, 2016
|  | Carrying Amount |  | Estimated Fair Value |  | Carrying Amount |  | Estimated Fair Value
|  |  |  | ($ in millions) |  |
Short-term debt (Level 1) |  | $ | 15 |  |  | $ | 15 |  |  | $ | 503 |  |  | $ | 511 |
Long-term debt (Level 1) |  | $ | 2,877 |  |  | $ | 2,785 |  |  | $ | 3,271 |  |  | $ | 3,216 |
Long-term debt (Level 2) |  | $ | 6,629 |  |  | $ | 6,421 |  |  | $ | 6,664 |  |  | $ | 6,654 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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