Chesapeake CEO loans could hurt the company’s bond ratings
The fallout surrounding Chesapeake Energy Corp. CEO Aubrey McClendon’s personal loans on company drilling projects could hurt Chesapeake”s bond rating, according to a report by Bloomberg on Friday.
McClendon in February said the company is on pace to becoming investment grade by the end of the year. But credit-default swaps on the bond market this week indicate that Chesapeake’s lenders have less confidence that the company will repay its debt. Chesapeake had $10.6 billion in long-term debt as of the end of 2011.
Marc Gross, a money manager at RS Investments in New York, said the news this week has “severely tainted the company.”
There is no chance of an IG (investment grade) rating” over the next three years, he said. Chesapeake is “more likely to get downgraded than upgraded.”
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[...] optimism earlier this year that it would be able to obtain investment grade ratings by the end of 2012. Since the current rating of BB- is three steps under investment grade, there seems to be little [...]
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I agree that Aubrey’s loans look bad, and this certainly will/has hurt the price of Chesapeake’s stock (at least in the short term). However, Aubrey’s personal loans shouldn’t have any impact on the company’s bond rating.
I agree 100% that we will see a man on Mars before we see Chesapeake bonds at investment grade, but it won’t be because of AM’s personal finances. It is because of the company’s huge debt (both on and off balance sheet) and the low price of natural gas.