S&P Downgrades Chesapeake Credit Ratings Over CEO Issues (CHK, CHKM)

Chesapeake Energy Corporation (NYSE: CHK) is getting put under even more fire dure to its CEO double-dipping by Aubrey McClendon.  Standard & Poor’s has just downgraded the corporate credit ratings of Chesapeake and its subsidiaries.  While the company is negotiating an early termination of its Founder Well Participation Program “after revelations about the CEO’s personal transactions revealed shortcomings in the company’s existing corporate governance practices.”

S&P noted that its board of directors is currently reviewing its financial agreements between McClendon and certain third parties.  S&P has noted that the turmoil coming from the latest corporate developments could hamper the company’s ability to meet the massive external funding requirements due to a weak operating cash flow currently and due to the continued aggressive capital spending plans.

S&P cut the corporate credit and senior unsecured debt issue ratings on Chesapeake down to ‘BB’ from ‘BB+’.  The ratings agency also cut the ratings on two different affiliates: Chesapeake Oilfield Operating LLC and Chesapeake Midstream  Partners L.P.  (NYSE: CHKM).  All of these ratings are being placed on CreditWatch with negative implications as well.

This is one of those corporate blunder of mega proportion.  The company has disclosed this practice, but most investors did not know it because they did not read the disclosures.   It may seem like a miracle if McClendon ultimately gets to hold on to his power here, but we would note that Chesapeake is more immune to outside influence by shareholders than most companies.  That being said, the only way that investors may get to vote is by selling their shares.

Chesapeake’s common stock is trading down about 3.3% at $17.53 on the day against a 52-week range of $17.03 to $35.75.

JON C. OGG