Chesapeake spins off drilling services division, very poorly received by the market

Investors had been expecting that the drilling services division would be sold for approximately $4b with the proceeds available for use in reducing leverage.  Instead CHK will get $400mm in a dividend, and the new service company to be called 77 Energy, will take on $1.1b of debt from CHK.  So instead of being able to pay off $4b in debt, they will only be able to pay down $1.5b.  Their debt rating was raised two notches to BB+ at S&P.

I'm not entirely sure why this was so poorly received.  Perhaps people may speculate that they couldn't get a good price for it.  I was surprised that about half of Chesapeake's 11,000 employees will go with the new company.

Also in an unrelated bit of news, CHK won a court decision last week against bondholders related to wether they could call certain bonds that had an unconventional and disputed indenture.  The benefit to CHK would be a bit over $100mm.