Chesapeake Energy Corp (CHK)

[dubstock]

SWN owns about a quarter of its assets with equity. CHK has almost no book equity remaining. There is no reason to believe a going concern risk exists with SWN. We currently feel CHK is safe because of the new lending agreement but there will invariably be debt covenants they will be on the threshhold of violating. Most all revolving credit facilities include capitalization ratio language - which they'll be offered a ramping period to get in compliance with. Asset sales won't help this issue. Only profits will. So CHK is rightfully suffering a discount for going concern risk. And it will come back with a vengeance if q3 isn't significantly improved.