Debt

Our long-term debt consisted of the following as of September 30, 2017 and December 31, 2016:



	September 30, 2017					December 31, 2016
	Principal Amount		Carrying Amount			Principal Amount			Carrying Amount
	($ in millions)
Term loan due 2021	$	1,500	$	1,500		$	1,500		$	1,500
6.25% euro-denominated senior notes due 2017^(a)	—		—			258			258
6.5% senior notes due 2017	—		—			134			134
7.25% senior notes due 2018	44		44			64			64
Floating rate senior notes due 2019	380		380			380			380
6.625% senior notes due 2020	572		572			780			780
6.875% senior notes due 2020	279		278			279			278
6.125% senior notes due 2021	550		550			550			550
5.375% senior notes due 2021	270		270			270			270
4.875% senior notes due 2022	451		451			451			451
8.00% senior secured second lien notes due 2022^(b)	1,737		2,355			2,419			3,409
5.75% senior notes due 2023	338		338			338			338
8.00% senior notes due 2025	1,000		987			1,000			985
5.5% convertible senior notes due 2026^(c)(d)	1,250		831			1,250			811
8.00% senior notes due 2027	750		750			—			—
2.75% contingent convertible senior notes due 2035	—		—			2			2
2.5% contingent convertible senior notes due 2037^(d)	—		—			114			112
2.25% contingent convertible senior notes due 2038^(d)	9		8			200			180
Revolving credit facility	645		645			—			—
Debt issuance costs	—		(62		)	—			(64		)
Interest rate derivatives^(e)	—		2			—			3
Total debt, net	9,775		9,899			9,989			10,441
Less current maturities of long-term debt, net	—		—			(506		)	(503		)
Total long-term debt, net^(f)	$	9,775	$	9,899		$	9,483		$	9,938

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(a)	The principal and carrying amounts shown are based on the exchange rate of $1.0517 to €1.00 as of December 31, 2016. See Foreign Currency Derivatives in Note 8 for information on our related foreign currency derivatives.


(b)	The carrying amounts as of September 30, 2017 and December 31, 2016, include premium amounts of $618 million and $990 million, respectively, associated with a troubled debt restructuring. The premium is being amortized based on the effective yield method.


(c)	The conversion and redemption provisions of our convertible senior notes are as follows:

Optional Conversion by Holders. Prior to maturity under certain circumstances and at the holder’s option, the notes are convertible into cash, our common stock, or a combination of cash and common stock, at our election. One triggering circumstance is when the price of our common stock exceeds a threshold amount during a specified period in a fiscal quarter. Convertibility based on common stock price is measured quarterly. During the Current Quarter, the price of our common stock was below the threshold level and, as a result, the holders do not have the option to convert their notes in the fourth quarter of 2017 under this provision. The notes are also convertible, at the holder’s option, during specified five-day periods if the trading price of the notes is below certain levels determined by reference to the trading price of our common stock. The notes were not convertible under this provision during the Current Quarter. Upon conversion of a convertible senior note, the holder will receive cash, common stock or a combination of cash and common stock, at our election, according to the conversion rate specified in the indenture.

The common stock price conversion threshold amount for the convertible senior notes is 130% of the conversion price of $8.568.

Optional Redemption by the Company. We may redeem the convertible senior notes for cash on or after September 15, 2019, if the price of our common stock exceeds 130% of the conversion price during a specified period at a redemption price of 100% of the principal amount of the notes.

Holders’ Demand Repurchase Rights. The holders of our convertible senior notes may require us to repurchase, in cash, all or a portion of their notes at 100% of the principal amount of the notes upon certain fundamental changes.


(d)	The carrying amounts as of September 30, 2017 and December 31, 2016, are reflected net of discounts of $420 million and $461 million, respectively, associated with the equity component of our convertible and contingent convertible senior notes. This amount is being amortized based on the effective yield method through the first demand repurchase date as applicable.


(e)	See Interest Rate Derivatives in Note 8 for further discussion related to these instruments.


(f)	See Note 16 for information regarding debt transactions subsequent to September 30, 2017.

Debt Issuances and Retirements

During the Current Period, we issued in a private placement $750 million aggregate principal amount of unsecured 8.00% Senior Notes due 2027 at par for net proceeds of approximately $742 million. Some or all of the notes may be redeemed at any time prior to June 15, 2022, subject to a make-whole premium. We also may redeem some or all of the notes at any time on or after June 15, 2022, at the applicable redemption price in accordance with the terms of the notes and the indenture and supplemental indenture governing the notes. In addition, subject to certain conditions, we may redeem up to 35% of the aggregate principal amount of the notes at any time prior to June 15, 2020, at a price equal to 108% of the principal amount of the notes to be redeemed using the net proceeds of certain equity offerings.

In the Current Period, we retired $1.609 billion principal amount of our outstanding senior notes, senior secured second lien notes and contingent convertible notes through purchases in the open market, tender offers or repayment upon maturity for $1.751 billion. For the open market repurchases and tender offers, we recorded an aggregate loss of approximately $1 million in the Current Quarter and an aggregate gain of approximately $183 million in the Current Period including $260 million of premium associated with our 8.00% Senior Secured Second Lien Notes due 2022.

In the Prior Period, we retired $2.192 billion principal amount of our outstanding senior notes and contingent convertible senior notes through purchases in the open market, tender offers or repayment upon maturity for $1.5 billion. Additionally, we privately negotiated an exchange of approximately $577 million principal amount of our outstanding senior notes and contingent convertible senior notes for 109,351,707 common shares. We recorded an aggregate gain of approximately $255 million associated with these repurchases and exchanges.

Term Loan Facility

We have a secured five-year term loan facility in an aggregate principal amount of $1.5 billion as of September 30, 2017. Our obligations under the facility are unconditionally guaranteed on a joint and several basis by the same subsidiaries that guarantee our revolving credit facility, second lien notes and senior notes and are secured by first-priority liens on the same collateral securing our revolving credit facility (with a position in the collateral proceeds waterfall junior to the revolving credit facility). The term loan bears interest at a rate of London Interbank Offered Rate (LIBOR) plus 7.50% per annum, subject to a 1.00% LIBOR floor, or the Alternative Base Rate (ABR) plus 6.50% per annum, subject to a 2.00% ABR floor, at our option. The term loan matures in August 2021 and voluntary prepayments are subject to a make-whole premium prior to the second anniversary of the closing of the term loan, a premium to par of 4.25% from the second anniversary until but excluding the third anniversary, a premium to par of 2.125% from the third anniversary until but excluding the fourth anniversary and at par beginning on the fourth anniversary. The term loan may be subject to mandatory prepayments and offers to purchase with net cash proceeds of certain issuances of debt, certain asset sales and other dispositions of collateral and upon a change of control.

Senior Secured Second Lien Notes

Our second lien notes are secured second lien obligations and are effectively junior to our current and future secured first lien indebtedness, including indebtedness incurred under our revolving credit facility and our term loan facility, to the extent of the value of the collateral securing such indebtedness, effectively senior to all of our existing and future unsecured indebtedness, including our outstanding senior notes, to the extent of the value of the collateral, and senior to any future subordinated indebtedness that we may incur. We have the option to redeem the second lien notes, in whole or in part, at specified make-whole or redemption prices. Our second lien notes are governed by an indenture containing covenants that may limit our ability and our subsidiaries’ ability to create liens securing certain indebtedness, enter into certain sale-leaseback transactions, consolidate, merge or transfer assets and dispose of certain collateral and use proceeds from dispositions of certain collateral. As a holding company, Chesapeake owns no operating assets and has no significant operations independent of its subsidiaries. Chesapeake’s obligations under the second lien notes are fully and unconditionally guaranteed, jointly and severally, by certain of our direct and indirect wholly owned subsidiaries.

In December 2015, certain of the existing notes that were exchanged for the second lien notes were accounted for as a troubled debt restructuring (TDR). For the exchanges classified as a TDR, if the future undiscounted cash flows of the newly issued debt are less than the net carrying value of the original debt, a gain is recorded for the difference and the carrying value of the newly issued debt is adjusted to the future undiscounted cash flow amount and no future interest expense is recorded. All future interest payments on the newly issued debt reduce the carrying value.

Senior Notes, Contingent Convertible Senior Notes and Convertible Senior Notes

Our obligations under our outstanding senior notes and convertible senior notes are fully and unconditionally guaranteed, jointly and severally, by certain of our 100% owned subsidiaries on a senior unsecured basis. Our non-guarantor subsidiaries are minor and, as such, we have not included condensed consolidating financial information in the notes to our condensed consolidated financial statements.

We are required to account for the liability and equity components of our convertible debt instruments separately and to reflect interest expense through the first demand repurchase date, as applicable, at the interest rate of similar nonconvertible debt at the time of issuance. The applicable rates for our 2.25% Contingent Convertible Senior Notes due 2038 and our 5.5% Convertible Senior Notes due 2026 are 8.0% and 11.5%, respectively.

Revolving Credit Facility

We have a senior secured revolving credit facility currently subject to a $3.8 billion borrowing base that matures in December 2019. Our borrowing base may be reduced in certain circumstances, including if we dispose of a certain percentage of the value of collateral securing the revolving credit facility. As of September 30, 2017, we had outstanding borrowings of $645 million under the revolving credit facility and had used $97 million of the revolving credit facility for various letters of credit. Borrowings under the revolving credit facility bear interest at a variable rate. The terms of the revolving credit facility include covenants limiting, among other things, our ability to incur additional indebtedness, make investments or loans, create liens, consummate mergers and similar fundamental changes, make restricted payments, make investments in unrestricted subsidiaries and enter into transactions with affiliates. As of September 30, 2017, we were in compliance with all applicable financial covenants under the agreement and we were able to borrow the full availability under the revolving credit facility.

As discussed in Note 16, on October 30, 2017, we completed a scheduled borrowing base redetermination review and our lenders reaffirmed our $3.8 billion borrowing base. Our next scheduled borrowing base redetermination is scheduled for the second quarter of 2018.

During 2016, we entered into the third amendment to our revolving credit facility. The amendment granted temporary financial covenant relief, with the revolving credit facility’s existing first lien secured leverage ratio and net debt to capitalization ratio suspended until September 30, 2017 (at which point the maximum first lien secured leverage ratio became 3.50 to 1.0 through the period ending December 31, 2017 and 3.00 to 1.0 thereafter and the maximum net debt to capitalization ratio for each period will be 65%) and the interest coverage ratio maintenance covenant reduced as noted below. In addition, we agreed to grant liens and security interests on a majority of our assets, as well as maintain a minimum liquidity amount (defined as cash and cash equivalents and availability under our revolving credit facility) of $500 million until the suspension of the existing maintenance covenants ends.

The third amendment increased the interest coverage ratio to 1.2 to 1.0 for the third quarter of 2017 and 1.25 to 1.0 thereafter. The amendment also gives us the ability to incur up to $2.5 billion of first lien indebtedness secured on a pari passu basis with the existing obligations under the credit agreement, subject to a position in the collateral proceeds waterfall in favor of the revolving lenders and affiliated hedge providers and the other limitations on junior lien debt set forth in the credit agreement. After taking into account the term loan repurchases discussed in Note 16, the amount of additional first lien indebtedness permitted by the revolving credit facility is $1.2 billion.

Fair Value of Debt

We estimate the fair value of our senior notes based on the market value of our publicly traded debt as determined based on the yield of our senior notes (Level 1). The fair value of all other debt is based on a market approach using estimates provided by an independent investment financial data services firm (Level 2). Fair value is compared to the carrying value, excluding the impact of interest rate derivatives, in the table below.



	September 30, 2017				December 31, 2016
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
			($ in millions)
Short-term debt (Level 1)	$	—	$	—	$	503	$	511
Long-term debt (Level 1)	$	2,876	$	2,861	$	3,271	$	3,216
Long-term debt (Level 2)	$	7,021	$	7,035	$	6,664	$	6,654