Chesapeake Energy planning record $3 billion bond offering to refinance debt

Chesapeake Energy Corp., the second-largest U.S. gas producer, is planning a record $3 billion bond offering in three parts to refinance debt, as the cost to protect its bonds against default approaches a six-year low.

The company intends to issue floating-rate notes due 2019 and fixed-rated securities maturing in 2022 and 2026, according to a regulatory filing today. Proceeds will be used to repay a term loan that matures in 2017, fund a tender offer for debt due 2015 and redeem 2018 securities, the filing said.

Debt from Chesapeake has outperformed peers in the last year as billionaire investor Carl Icahn prods the Oklahoma City- based company to increase financial discipline by drilling fewer wells and selling assets. Standard & Poor’s placed the company’s BB- rating on review for an increase on Feb. 6, citing its plan to keep capital spending in line with cash flow.

The eight-year notes may offer a yield of 6.46 percent at a spread of 429 basis points more than similar-maturity Treasuries and the 12-year securities may pay 7.08 percent to yield 444 basis points more than benchmarks, according to Bloomberg New Issue Analytics. A basis point equals 0.01 percentage point.

Chesapeake’s debt has gained 6.47 percent in the last year, more than the 5.6 percent advance among peers in the Bloomberg USD High Yield Corporate Bond Index. Moody’s Investors Service ranks the company’s debt Ba2.

The company’s five-year credit-default swaps were quoted at 173.2 basis points at 8:15 a.m. in New York, down from almost 900 basis points two years ago when Icahn first pushed for management changes, according to data compiled by Bloomberg. That’s compared with 167.3 basis points on Feb. 25, the lowest closing level since December 2007, the data show.