Chesapeake noteholders, BNY Mellon escalate bond battle

Tue Mar 12, 2013 11:49am EDT
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(Reuters) - Chesapeake Energy Corp (CHK.N: Quote) is facing a showdown with investors and a bond trustee over its plan to redeem $1.3 billion of notes early.

The natural gas company, which faces a projected $3 billion cash shortfall this year, is hoping to avoid an extra $400 million of payments on the notes, which carry a 6.775 percent interest rate and mature in 2019.

Chesapeake filed a lawsuit last Friday in U.S. District Court in Manhattan seeking to block bond trustee Bank of New York Mellon Corp (BK.N: Quote) from interfering with the proposed redemption of the debt at 100 cents on the dollar, or par.

But in a court filing on Tuesday, investors who own roughly $250 million of the notes contended that the plan would shortchange them, saying the notes are worth more and that the move would violate Chesapeake's contractual obligations.

Bank of New York Mellon also filed court papers opposing the redemption plan.

Jim Gipson, a Chesapeake spokesman, declined to comment.

A hearing is scheduled for Tuesday afternoon before U.S. District Judge Paul Engelmayer in Manhattan.

Chesapeake has said the proposed redemption is part of a broader plan to refinance its debt. A higher payout would hurt its balance sheet.

The 6.775 percent notes traded up 3.1 cents at 106.1 cents on the dollar in morning trading, with a yield of 5.57 percent, according to bond pricing service Trace.   Continued...

Chesapeake Energy Corporation's 50 acre campus is seen in Oklahoma City, Oklahoma, on April 17, 2012. REUTERS/Steve Sisney