![]() ![]() Its last traded price was $3 or 3% of par. Not only is the downside lower as bondholders would own something while shareholders got wiped out, but the upside is likely higher as well. If an investor absolutely must buy a stake in Chesapeake, it's much better to buy the bonds over the stock. In a situation like this, it is a near certainty that existing equity will be cancelled and have no value. Bond holders will take over an equity position in a newly formed Chesapeake and the expectation is that they will recover only a tiny fraction of the face value of their bonds. The bond market believes that a restructuring will take place prior to then. Chk stock message board full#The August bondholders are willing to sell their bonds at 83% below their face value (plus accrued interest) rather than wait to August and see if they will be paid in full upon maturity. Bond holders, even those who own bonds maturing in August, are so sure that they won't be paid in full that they are willing to sell at extreme discounts to par value. What does all of this mean? The bond market is pricing in an inevitable restructuring of CHK and a poor recovery in value on its assets. ![]() ![]() Their annualized yields to maturity are over 1000%. What's more, the bonds that mature in four and seven months from now are trading at 17% and 12% of their face value, respectively. The annualized yields to maturity are all greater than 100%. All of the company's outstanding bonds that mature between 20 are priced at $10 or less per $100 face value. The prices of CHK's bonds show that the equity is on borrowed time. Equity will get wiped out or effectively wiped out in a restructuring or liquidating bankruptcy proceedings. But this will likely not be worth more than a few pennies per share. Existing shareholders may get a very small stake in the newly issued equity or warrants. In practice, if Chesapeake goes through a restructuring, creditors will take over equity in a newly formed company with the old equity being cancelled. In theory, bondholders must get paid out in full before equity holders see a penny. This increases the chance of the company defaulting on interest or principal repayments which would set the wheels in motion for a Chapter 11 bankruptcy restructuring. The longer oil stays at $20, the more CHK's operating cash flows will be squeezed. The issue with this thought process is that with oil prices being where they are, CHK's long-term assets have a current market value that is much less than what the book value states. CHK's balance sheet at the end of 2019 showed $16.2 billion in total assets against $11.8 billion in total liabilities:Īn investor might take a look at the $4.4 billion in total equity and $2.7 billion in equity attributed to common stockholders and think that CHK is trading at an extreme discount. I will be writing this article with relatively inexperienced traders in mind who might not fully understand that structure of a company's balance sheet and what that means for their shares. Today's buyers of CHK may be inexperienced market participants and not realize the extremely high risk and poor return prospects of buying the stock. Shares have been sold by long-term investors and bought by retail traders trying to pick a bottom and hoping for a dead cat bounce. CHK has dropped to a market cap barely over $100 million. The stock's ski slope chart has been taking remaining shareholders on a dangerous and painful ride. But the pace of its stock price decline has greatly accelerated in 2020 amid the Coronavirus outbreak and crashing oil prices. ![]() Chesapeake Energy Corporation ( NASDAQ: CHK) has been a perennial money loser for investors over the last few years. ![]()
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