Chesapeake Energy Corp.'s (NYSE: CHK) stocks and bonds staged a spectacular rally this week after lenders threw the troubled oil and gas company a lifeline and quashed fears of a bankruptcy.

Chesapeake shares surged 35% and its junk bonds bounced by up to 18 points after lenders kept a $4 billion borrowing facility in place and said it would not be reviewed until June 2017.

The deal helped Chesapeake, embroiled in controversy above and beyond the woes in the energy sector, live to fight another day even as others have been filing for bankruptcy.

"They have put off a near-term day of reckoning," George Schultze, CEO of hedge fund Schultze Asset Management, said.

Many in the industry had expected banks to slash the lending facility for Chesapeake, whose founder died in a March car wreck after he had been indicted on antitrust charges.

Fellow E&P Energy XXI filed for bankruptcy on April 14, and Chesapeake had spent weeks fending off speculation that it was on its way to a similar fate.

"The management team is doing everything it can to survive," Brian Gibbons, an analyst at CreditSights who had expected the credit facility to be cut by up to $2 billion, said. "Was it a surprise?" he said about the deal with the company's lenders. "Absolutely."

Act Now

After the reprieve, the company now needs to act quickly to refinance its heavy load of short-term debt.

CreditSights estimates its maturity wall at $1.7 billion for 2017 and $800 million in 2018; this is a total of $2.5 billion in all, or the same amount it can raise in first-lien debt under the new deal with lenders.

"I suspect based on where their current bonds are trading that an exchange would be easier," Gibbons told IFR.

"It would most likely have to be higher in the capital structure--a first-lien--and offer a higher coupon than the existing bonds."

Whatever the case, the Oklahoma-based company will have to accept paying some eye-watering yields.

Chesapeake had limited success with a debt exchange in December to ease its short-term liquidity woes, and the new second-lien bond it issued--an 8% maturing in 2022--is trading around 60 cents on the dollar and yielding a massive 18.5% according to MarketAxess.

And that's the lowest yield in its bond complex.

Its unsecured bonds, including the shortest-dated 2017s and 2018s, yield between 21.7% and 28%. Most are still languishing at cash prices of 55 and below.

Cash burn is also a major cause for concern, one the lenders addressed by requiring Chesapeake to maintain minimum liquidity of $500 million, or $750 milliom if collateral coverage drops below 1.1x.

Schultze said the company could get "lucky" if oil and gas prices rebound, but underlined that the renewal of the credit facility was far from the end of the story.

"This doesn't mean their capital structure is fixed," he said. "As an equity investor, I'd be concerned."