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Saturday, May 12, 2012

CNBC On $CHK's $3 Billion Loan

I like seeing things like this on CNBC as it is encouraging for an investor like me.

Two comments especially encouraging from CNBC:

1) Chesapeake had disclosed that it would delay asset sales because of loan covenants.
2) Chesapeake has a funding gap of $10 billion

Here is why I find this encouraging.

1) As I posted yesterday Chesapeake didn't say that they were delaying asset sales.  The 10Q simply had a very carefully worded paragraph that explained that asset sales COULD be influenced by loan covenants.  If you have ever read a 10Q the entire thing is loaded with cautionary language surrounding things like this.  Somehow this got spun into Chesapeake saying it couldn't sell assets and seemingly every investor believed that.

2) The funding gap.  The gap is between what Chesapeake has for cash currently and what it WANTS to spend and a debt reduction it is choosing to make.  The capex plan is discretionary for the most part as is the debt reduction (remember the 25/25 plan ?).  I'm certain that every Talking Head on CNBC thinks that Chesapeake has to come up with this $10 billion or go bankrupt.

Not the case.  Discretionary.

And here is a thought.  Chesapeake is going to monetize about $12 billion in assets.   Chesapeake has about $13 billion of long term debt.  How much trouble can you really be in if you can sell a tiny fraction of your assets and raise cash that covers your entire debt ?

Don't get me wrong.  I don't like this Board of Directors, I have serious reservations about McClendon, and am concerned about natural gas prices this summer and into next winter should it be warm again.

But don't believe the idiots on the television or in the media because they haven't spent 5 minutes following this or any other bloody company that they are willing to speak about as though they are experts.

And that is encouraging, because it seems to me most buying and selling of stocks is being done by people who haven't bothered to really look at the fundamental story.

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