Chesapeake Energy Corp. (CHK) lost a court bid to force hedge fund River Birch Capital LLC to turn over e-mails explaining why it bought the gas company’s 2019 notes that were later called early at 100 cents on the dollar.
River Birch’s motive for buying the bonds as late as February are irrelevant to Chesapeake’s lawsuit against Bank of New York Mellon Corp., the trustee for the notes, U.S. District Judge Paul Engelmayer ruled today in Manhattan.
The gas company claims its early redemption of $1.3 billion of the notes on March 15 met a deadline to avoid paying bondholders $400 million in extra “make whole” interest.
“The bias or motive of River Birch or Bank of New York Mellon is irrelevant,” Engelmayer said. “The case doesn’t really turn on Bank of New York’s state of mind” and will instead be decided based on the meaning of the March 15 deadline in the indenture paperwork for the notes, he said.
Bank of New York Mellon initially agreed with Chesapeake in February that the early redemption would meet a deadline for the second-biggest natural gas producer in the U.S. to redeem the notes six years early at par. The trustee changed its position after River Birch argued Chesapeake had started the process at least a month too late. River Birch wasn’t sued in the case.
Chesapeake had argued in an April 8 letter to the court that River Birch and Bank of New York Mellon should have turned over the e-mails as part of the pre-trial exchange of information. Engelmayer said today that the bank should speed up its process for turning over some related documents.
Engelmayer also ordered Chesapeake to turn over to him a sample of as many as 1,000 e-mails that Bank of New York Mellon believes may show the gas company was also uncertain about the meaning of the deadline and sought a way out of missing it.
Since the documents involve “privileged” communications between Chesapeake and its lawyers, Engelmayer said he would review them in private before ruling whether the bank should have access to them to help its defense of the lawsuit.
Chesapeake contends the March 15 deadline stated in the indenture was for the notice of early redemption to be sent to noteholders, while BNY Mellon claims the call would need to be formally completed by that date.
BNY Mellon, based in New York, and Chesapeake are scheduled to face off at trial beginning April 23 over the Oklahoma City- based gas producer’s claim that it made the call on time.
Engelmayer said today he would try to rule on the case by May 9, citing concern that he doesn’t have any authority to block the early call from being formally executed in mid-May regardless of who wins the case.
To contact the reporter on this story: Erik Larson in New York at email@example.com