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Tuesday, January 26, 2016

Chesapeake Energy Suspends Preferred Stock Dividends, But is it Just Delaying the Inevitable?

From The Wall Street Journal:
Chesapeake Energy’s preferred shareholders went from despair to elation and back in under two hours Friday when the natural-gas giant suspended dividends on the securities. The loss of income is obviously bad. This is why its Series D convertible preferred shares plunged 17% to an all-time low of under 13 cents on the dollar. 
But maybe investors took brief solace in management’s statement that this was “in the best long-term interest of all company stakeholders.” The securities jumped 27%, only to plunge anew. 
The $170 million saved by not getting paid yourself can be used to buy back other distressed securities and decrease the chance of never receiving your principal. But some owning preferred stock may have been betting that would happen anyway and counting on some juicy dividends in the meantime.
Read the whole article here.

From TheStreet comes this grim analysis of Chesapeake's situation:
If you've managed to weather Chesapeake Energy Corp.'s(CHK - Get Report) 82% stock price drop, you may now believe that the worst is over. 
Unfortunately, though, the reality of the situation is far different. Right now, the situation continues to look rather bleak, with scant possibility of a recover. Here's why Chesapeake belongs to a group of stocks that are destined to collapse and severely punish investors this year. 
Chesapeake has had the worst possible headlines over the past few months. 
The company suspended dividend payments on preferred shares, in a move to manage its cash reservoirs and contain the debt scenario. The company's debt securities are already trading at a significant discount. A series of quarterly losseshave shaken Chesapeake's strongest supporters. The stock recently hit levels that were at their lowest since April 2000. 
To understand Chesapeake's slump. we need to go back in time. In 1989, legendary wildcatter Aubrey McClendon co-founded this Oklahoma-based giant, fuelled by billions of dollars of debt sales. At the time, few could have guessed what was in store -- the protracted decline in oil prices. Chesapeake, once the largest producer of gas in the U.S., used that massive debt pool to purchase hard assets. 
Not paying dividends on preferred shares may save the company millions (on the surface a smart move), but the blemish on its reputation and standing in the market as a result of the same, is without a doubt, staggeringly huge.
Click here to continue reading that article. 

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