A month ago, May 11, Chesapeake Energy Confirms it Hired Advisors to Explore Bankruptcy Options.

Chesapeake warned that it might not be able to restructure its debt nor improve its financial position. Because of that, "management has concluded that there is substantial doubt about the Company's ability to continue as a going concern."

The company took an additional step to prepare for a potential bankruptcy filing by prepaying $25 million in incentive compensation to 21 top executives so that they stay motivated. This move mirrors a similar one by Whiting Petroleum, which approved $14.6 million in cash bonuses to its executives just days before it filed for bankruptcy

Synopsis 

  • In the week in which Chesapeake Energy confirmed it hired bankruptcy advisors, it paid $21 million in bonuses. CHK traded between $8 and $12. 
  • On June 4 CHK was just under $15.
  • On June 5 CHK blasted to $25.
  • Then on June 8, CHK did a moon shot to $77.50. Shorts were massacred.
  • Today, June 9, CHK is halted, down 65% on the day.

June 9 Energy Sector Smash

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Barron's reports Chesapeake Energy Could File for Bankruptcy. Small Energy Stocks Are Plunging

Chesapeake Energy (CHK) stock was halted on Tuesday morning after a report said it plans to file for bankruptcy. Before the trading halt, its shares were down more than 40% [Mish note 65%], sending ripples through the energy industry. Small oil-and-gas company stocks were plunging by double-digits, a remarkable shift in just 24 hours.

As the retail shorts were forced out, the market makers accumulated the shorts. Then the company was halted.

The price will plunge back towards its predetermined fate now that shorts covered between $25 and $77. 

CHK ended the day down $45.67 to $24.25. That's a 65% plunge.

Mish

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