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We have a significant amount of indebtedness. Our leverage and debt service obligations may adversely affect our financial condition, results of operations and business prospects, and we may have difficulty paying our debts as they become due. As of December 31, 2016, we had approximately $10.0 billion in principal amount of debt (including current maturities), and borrowing capacity of approximately $2.8 billion under our $4.0 billion senior secured revolving credit facility, which was undrawn (other than letters of credit issued thereunder in the aggregate amount of $1.0 billion). We also had a net working capital deficit of approximately $1.506 billion as of December 31, 2016. During January 2017, we repurchased or retired approximately $900 million principal amount of debt, resulting in a debt balance of $9.1 billion principal amount as of February 24, 2017. The level of and terms and conditions governing our debt: •

require us to dedicate a substantial portion of our cash flow from operations to service our existing debt obligations and could limit our flexibility in planning for or reacting to changes in our business and the industry in which we operate;

increase our vulnerability to economic downturns or adverse developments in our business;

could limit our ability to access the capital markets to refinance our existing indebtedness, to raise capital on favorable terms or to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or execution of our business strategy or for other purposes;

expose us to the risk of increased interest rates as certain of our borrowings, including borrowings under our credit facility, bear interest at floating rates;

place restrictions on our ability to obtain additional financing, make investments, lease equipment, sell assets and engage in business combinations;

place us at a competitive disadvantage relative to competitors with lower levels of indebtedness in relation to their overall size or that have less restrictive terms governing their indebtedness and, therefore, that may be able to take advantage of opportunities that our indebtedness prevents us from pursuing;

limit management’s discretion in operating our business; and

increase our cost of borrowing.

Any of the above listed factors could have a material adverse effect on our business, financial condition, cash flows and results of operations. Our ability to pay our expenses and fund our working capital needs and debt obligations will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors. We will not be able to control many of these factors, such as commodity prices, other economic conditions and governmental regulation. We have previously drawn on our credit facility for liquidity, and the borrowing base under our credit facility is subject to redetermination on June 15, 2017. To the extent that the value of the collateral pledged under the credit facility declines as a result of lower oil and natural gas prices, asset dispositions or otherwise, we may be required to pledge additional collateral in order to maintain the current availability of the commitments thereunder, and we cannot assure you that we will be able to maintain a sufficiently high valuation to maintain the current commitments. Our borrowing base may be reduced if we dispose of a certain percentage of the value of the collateral securing our facility. As a result of certain asset sales in 2016, our borrowing base was reduced to $3.8 billion. In addition, we cannot be certain that our cash flow will be sufficient to allow us to pay the principal and interest on our debt and meet our other obligations. If we are unable to service our indebtedness and other obligations, we may be required to restructure or refinance all or part of our existing debt, sell assets, reduce capital expenditures, borrow more money or raise equity. We may not be able to restructure or refinance our debt, reduce capital expenditures, sell assets, borrow more money or raise equity on terms acceptable to us, if at all, or such alternative strategies may yield insufficient funds to make required payments on our indebtedness. In addition, our ability to comply with the financial and other restrictive covenants in our indebtedness is uncertain and will be affected by our future performance and events or circumstances beyond our control. Failure to comply with these covenants would result in an event of default under such indebtedness, the potential acceleration of our obligation to repay outstanding debt and the potential foreclosure on the collateral securing such debt, and could cause a cross-default under our other outstanding indebtedness. Any of the above risks could materially adversely affect our business, financial condition, cash flows and results of operations.


Profile for Chesapeake Energy

2016 Annual Report  

2016 Annual Report