Chesapeake Energy credit upgraded at S&P Global, but remains 2 notches deep in ‘junk’ territory

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Shares of Chesapeake Energy Corp. CHK, +0.29% edged up 0.1% in morning trading Monday, after S&P Global Ratings raised its rating on the oil and gas exploration company’s credit, citing a “favorable operational and financial track record” since merging from bankruptcy early last year. The rating moved up one notch to BB from BB-, but the new rating remained two notches deep into speculative grade, or “junk,” territory. The rating outlook is stable. The company has “grown production in a capital-efficient manner, made progress on the integration of two large acquisitions, and filled out its executive management team while keeping dividends and share repurchases within cash flows,” S&P Global said. The credit rating agency said it would upgrade Chesapeake’s credit if the ratio of funds from operations (FFO) to debt remain above 60% and if the ratio of positive discounted cash flow (DCF) to debt is positive for a sustained period. The stock has rallied 8.2% over the past three months, while futures for crude oil CL00, -0.78% have lost 10.0% and for natural gas NG00, +4.56% has tumbled 36.9%, and the S&P 500 SPX, +0.77% has shed 5.3%.

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