Chesapeake Energy’s Aubrey McClendon is a wildly successful and polarizing CEO.
But news that McClendon has borrowed as much as $1.1 billion in previously undisclosed loans could once again create tension with shareholders, as Reuters’ Anna Driver and Brian Grow report.
The loans were made through three companies controlled by McClendon that list Chesapeake’s headquarters as their address. The money is being used to help finance what could be a lucrative perk of his job – the opportunity to buy into the very same well stakes that he is using as collateral for the borrowings.
The size and nature of the loans raise concerns about whether McClendon’s personal financial deals could compromise his fiduciary duty to Chesapeake investors, according to more than a dozen academics, analysts and attorneys who reviewed the loan agreements for Reuters.
The news comes at a particularly sensitive time the company. McClendon is trying to steer the Oklahoma City energy giant away from a multi-billion-dollar cash shortfall spurred by historically low natural gas prices.
The loans portend a number of possible problems, the analysts said. McClendon’s biggest lender is simultaneously a major investor in two units of Chesapeake. That connection raises questions about whether Chesapeake’s own financing terms could be influenced by its CEO’s personal borrowing.
McClendon and Chesapeake dispute any conflict of interest and say the loans are private transactions that the company is not responsible for disclosing or vetting. But as Reuters reports, there’s a history of McClendon’s personal transactions creating problems for Chesapeake:
To buy more Chesapeake stock, McClendon borrowed money from his brokers – what’s called “buying on margin.” In October 2008, just after the financial crisis erupted with the bankruptcy of Lehman Brothers, he was forced to sell more than 31 million Chesapeake shares for $569 million to cover margin calls from those brokers. The company’s stock fell nearly 40 percent the week of McClendon’s share sales. McClendon issued an apology but the company’s credibility with many shareholders suffered significantly.