By Vince Sullivan

Law360 (June 28, 2020, 10:24 PM EDT) -- Oil and gas driller Chesapeake Energy Corp. hit Chapter 11 late Sunday in Texas, succumbing to months of financial struggles worsened by the COVID-19 pandemic but coming to court with plans to slash $7 billion of debt from its balance sheet.

The company listed nearly $12 billion in total debt in its initial court filings and said in a statement accompanying the Chapter 11 petition that it filed for bankruptcy protection to strengthen its balance sheet and restructure legacy contractual obligations to emerge with a stronger capital structure.

"We are fundamentally resetting Chesapeake's capital structure and business to address our legacy financial weaknesses and capitalize on our substantial operational strengths," Chesapeake President and CEO Doug Lawler said in the statement. "By eliminating approximately $7 billion of debt and addressing the legacy contractual obligations that have hindered our performance, we are positioning Chesapeake to capitalize on our diverse operating platform and proven track record of improving capital and operating efficiencies and technical excellence."

Last month, the company said in regulatory filings with the U.S. Securities and Exchange Commission that years of declining energy commodity prices were met by plunging demand in light of travel restrictions imposed in response to the global outbreak of the novel coronavirus. To add to that bearish mix, international oil producers engaged in a pricing war earlier this year that saw oil and gas prices dip even further.

In response to its financial troubles, Chesapeake Energy said it had cut its operating expenses by more than $1 billion this year and shifted its focus away from oil production and onto its gas operations, according to the SEC filings.

Coming into bankruptcy, the debtor has obtained commitments from existing lenders to provide $925 million in debtor-in-possession financing that will fund its operational expenses, according to the company's statement. As part of a restructuring support agreement, Chesapeake Energy has garnered the support of 100% of the lenders under its revolving credit facility, 87% of its term loan lenders, about 60% of the holders of senior secured second-lien notes and 27% of its senior unsecured note holders, according to the statement.

The revolving credit facility lenders are providing the post-petition financing package, and a subset of those lenders have agreed to provide a $2.5 billion exit facility consisting of a $1.75 billion new money revolver and a $750 million term loan. Existing term loan lenders and senior secured noteholders have also pledged to backstop a $600 million new rights offering upon exit from Chapter 11.

The company has filed a typical slate of first day motions for an energy production company, including requests to pay $550 million in operational obligations consisting mostly of the costs of operating its leasehold interests in production wells, and to pay the wages and benefits of its workforce.

A remote hearing to consider these motions is scheduled for Monday before U.S. Bankruptcy Judge David R. Jones.

Chesapeake Energy is represented by Matthew D. Cavenaugh, Jennifer F. Wertz, Kristhy M. Peguero and Veronica A. Polnick of Jackson Walker LLP and Patrick J. Nash Jr., Marc Kieselstein and Alexandra Schwarzman of Kirkland & Ellis LLP.

The case is In re: Chesapeake Energy Corporation, case number 4:20-bk-33233, in the U.S. Bankruptcy Court for the Southern District of Texas.

--Additional reporting by Keith Goldberg. Editing by Emily Kokoll.

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