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HomeFT SelectChesapeake taps debt markets after 2 years

Chesapeake taps debt markets after 2 years

Chesapeake Energy, the indebted US energy group that was among the pioneers of the country’s shale revolution, tapped debt markets for the first time in more than two years on Tuesday in a deal that underlined renewed appetite for oil and gas assets.

The Oklahoma-based company, which defaulted on some of its obligations this year, secured $1bn in a larger than expected financing to repay as much as $1.2bn of its debts, giving it flexibility as it navigates turbulent commodity prices.

Chesapeake was joined by a handful of other groups taking advantage of the sharp rally in oil and gas debt, with bankers rushing to finalise bond sales from Mexico’s national oil company Pemex, Parsley Energy, Rowan Companies and Matador Resources.

Investor appetite for the sector has rebounded after oil prices bottomed in February, with West Texas Intermediate, the US benchmark, falling as low as $26.05 a barrel. Prices have since climbed about 95 per cent, buoyed recently by Opec’s agreement to cut capacity, but remain at more than half of 2014’s highs.

“Companies are coming back to the market and finding eager buyers,” said Henry Peabody, a portfolio manager with Eaton Vance. “We all have a good sense of Opec’s historical adherence to agreements . . . but for now the market is convinced we’ll see higher risk assets.”

“Frankly, if I were an issuer in the energy market I would be taking advantage of the tone in the market.”

The market is a little bit more comfortable with what would appear to be a floor for oil prices for the short term

Chesapeake marketed new notes maturing in 2025 with a yield of 8.25 per cent, while Pemex was set to raise $5.5bn in a three-part sale and junk-rated Parsley Energy was finalising a $650m offering. The deals follow a $1.5bn bond sale from Houston-based Cheniere Energy on Monday, which was raised following strong investor demand.

“The market is a little bit more comfortable with what would appear to be a floor for oil prices for the short term,” said Brian Kloss, a portfolio manager with Brandywine Global Investment Management. “[Investors are] more comfortable with energy names.”

So-called junk-rated energy groups — riskier companies rated double-B plus or lower by one of the major credit agencies — have proved among the best-performing asset classes this year, returning 35.1 per cent in 2016, according to Bloomberg Barclays Indices. By contrast the broader US high-yield corporate bond asset class has gained 15.3 per cent this year.

Chesapeake debt advanced as bankers at Deutsche Bank, which underwrote the offering, topped up their books. The group’s $223m of notes maturing in 2017 rose to 103 cents on the dollar. In February, that same debt traded below 30 cents on the dollar. The company has sought to cut its debt burden and has agreed to sell roughly $2bn of assets this year.

Via FT