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Chesapeake Energy Corporation (NYSE:CHK) released an update on the considerable improvements in its capital structure after recent transactions. The firm completed a private placement of unsecured convertible senior notes worth $1.25 billion, with a provisional call aspect. This will offer company an opportunity in debt to equity conversion in three years if the firm’s stock moves above 130% of the conversion rate for a specified period. As of September 30, 2016, the firm’s cash on hand and pro forma for the issuance of convertible debt, was nearly $1 billion with no debts on its revolving bank credit feature.

The highlights

Chesapeake Energy completed privately negotiated purchase and exchange deals under which the firm exchanged nearly 110.3 million shares of CHK common stock. The deal was performed for 134,000 shares of 5% cumulative convertible preferred stock, 606,271 shares of 5.75% convertible preferred stock and 553,007 securities of 5.75% Series A cumulative convertible preferred stock.

This amount of preferred stock highlights liquidation value of nearly $1.2 billion, which was traded at a discount of more than 40%. Following these exchange deals, the firm’s common shares presently outstanding are nearly 886 million, before giving impact to future dilution from convertible stocks.

The management speaks

Doug Lawler, the CEO of Chesapeake, said that through the completed deals, they have considerably improved capital structure. The release of unsecured convertible notes, and the significant decline in preferred stock at a steep discount, results in less preferred equity and improved liquidity and is accretive to firm’s capital structure.

The company will use the cash proceeds from this offering for offering excess liquidity to solve the remaining maturities of debt through 2018. These deals highlight major steps toward accomplishing firm’s financial objectives of $2-3 billion of debt decline and growing production within liquidity. Chesapeake continues to make substantial progress in minimizing the overall cost of financing and simplifying the balance sheet. They remain closely focused on further declines to capital cost and operating structure.

All these updates hold significant importance as Chesapeake businesses focus on discovering and advancing its geographically diverse and large resource base of unconventional natural gas and oil assets onshore in the U.S.