What's going on?

Chesapeake Energy is the 2nd largest producer of natural gas in America � and on Monday its stock dropped almost 30% as it was forced to deny rumors that it was considering filing for bankruptcy.

What does this mean?

Chesapeake is a prime example of how US energy producers have been affected by low energy prices, e.g. oil and natural gas. Before natural gas started selling off in a huge way, the value of Chesapeake�s stock was almost $20 billion. Its stock is now worth $1.28 billion. Meanwhile, the company has more than $10 billion in debt. It�s a sign of trouble when a company has debt that is so much higher than the value of its stock. In such scenarios, the company could declare bankruptcy – which would likely wipe out the value of the stock – or could do other things that are bad for existing shareholders (like give stock to debt holders). It�s not clear yet what will happen.

Why should I care?

Bigger picture: This is happening to many US energy companies. About 40 energy companies in the US entered bankruptcy in 2015, according to Reuters. More are expected this year. The reasons are similar: energy prices have collapsed and their debt, compared to the overall value of the company, is very high. Also, troubles at one producer can affect others, like pipeline owners (e.g. the pipes that move the energy around the country).

For markets: Debt can be dangerous. When things go bad for a company (or an individual), having debt puts them under pressure more quickly than they would otherwise be. Chesapeake has to pay a high amount of interest every year and it has large upcoming payments due to lenders. Without the urgency of having to repay debt, it would be in a better position to weather the downturn in energy prices.