Chesapeake, BNY Mellon Seek Bond-Call Resolutin by May 10Erik Larson
Chesapeake Energy Corp. and Bank of New York Mellon Corp. asked a federal judge to hold a trial to resolve by May 10 the gas producer’s claim that it met a deadline to redeem $1.3 billion in bonds early at par.
The companies proposed a timetable for an expedited trial in a joint letter to U.S. District Judge Paul Engelmayer in Manhattan dated yesterday and posted today on the docket.
“The court should set a trial date that will permit a resolution of this dispute by May 10, in the event that trial is necessary” according to the letter. A hearing on the matter is scheduled for this afternoon.
Engelmayer said last week that he would rush the case so it will be completed within 60 days of Chesapeake’s March 15 notice to investors that it was calling the 6.775 percent notes six years before they mature. The judge had said the dispute must be resolved before the call is executed.
Chesapeake, based in Oklahoma City, on March 8 sued BNY Mellon, the indenture trustee for the notes, seeking a court order that the second-biggest natural gas producer in the U.S. had until the March 15 deadline to issue the notice without paying $400 million in extra “make whole” interest.
The bank argued that the extra payment was required because the call wasn’t completed by that date.
Investors holding $250 million in the notes due March 2019 won court approval last week to intervene in the case and were also involved in agreeing to the schedule.
The day before Chesapeake made the early call, Engelmayer denied an injunction sought by the company that would have prevented Bank of New York Mellon and the investor group from treating the call as a “make-whole” early redemption if the judge later ruled the call was made too late to be at par.
Chesapeake issued the notice anyway, because Engelmayer ruled that even though he was denying the injunction for legal reasons, the bank trustee and investors were “overwhelmingly” likely to lose if they took the make-whole demand to trial. The trial should focus on the deadline instead, the judge said.
BNY Mellon, the world’s largest custody bank, triggered the lawsuit after it initially agreed with Chesapeake on the deadline in February and then changed its position when noteholder River Birch Capital LLC objected.
Engelmayer, in his ruling last week, said the contract was ambiguous and he would need to see evidence about how it was drafted before deciding at a trial which side is correct.
The early redemption might still be scrapped within two months if Chesapeake was wrong about the deadline. Engelmayer said the noteholders appear to have a better argument based on the early evidence he has seen.
The group of investors involved in the case also includes Archer Capital Management LP, Ares Management LLC, Aurelius Capital Management LP, Carlson Capital LP, Cetus Capital LLC, Latigo Partners LLP, Monarch Alternative Capital LP, Schoenfeld Asset Management LP and Taconic Capital Advisors LP.
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).