Chesapeake Energy Corp. was denied a request for an emergency court ruling allowing it to start redeeming $1.3 billion in notes early without automatically incurring the risk of paying about $400 million in interest sought by Bank of New York Mellon Corp.
Chesapeake had sought a ruling saying it could issue a notice to bondholders by tomorrow informing them it will redeem the 6.775 percent notes at par, or 100 cents on the dollar, six years before they mature. BNY Mellon, as trustee, said the company missed the deadline for such a redemption.
Chesapeake told the judge before the ruling was that they didn't plan to redeem the notes if they didn't get a favorable ruling.
U.S. District Judge Paul Engelmayer in Manhattan left open the possibility of a trial over the interpretation of the deadline. Chesapeake, the second-biggest U.S. natural-gas producer, argued that March 15 is the final date it can issue the formal notice of early redemption and avoid a so-called make-whole provision, while BNY Mellon said it's the deadline by which the call would need to be completed, and thus it's too late to start the process.
The judge also suggested that Chesapeake would have a good chance of defeating the provision that would automatically require Chesapeake to pay the $400 million in interest. He still refused to block the make-whole provision because Chesapeake hadn't proved it would suffer irreparable harm if it was triggered. The judge was skeptical of the view of BNY Mellon and a group of investors that intervened in the case, that they could treat the call as a make whole redemption that would include the extra interest.
The $1.3 billion of 6.775 percent notes due March 2019 rose 2.5 cents on the dollar to 108 cents to yield 5.2 percent at 4:30 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Michael Kehs, a spokesman for Oklahoma City-based Chesapeake, declined to comment when contacted by telephone after the hearing. The company's outside spokesman, Paul Caminiti, declined to comment outside court after meeting with Chesapeake's lawyer.
The judge asked the parties to report to him by March 18 what they plan to do in light of his ruling. He offered to have a trial completed within 60 days.
The case is Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., 13-cv-01582, U.S. District Court, Southern District of New York (Manhattan).
Bloomberg News
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