Chesapeake, Bank of New York, square off in bond trial

Tue Apr 23, 2013 1:50pm EDT
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By Bernard Vaughan

NEW YORK (Reuters) - Chesapeake Energy Corp began an expedited trial on Tuesday against Bank of New York Mellon Corp over the energy company's effort to redeem $1.3 billion of notes at par.

The proceeding in Manhattan federal court comes less than two months after Chesapeake sued the bank, the trustee for the bonds, seeking to prevent it from interfering with the redemption.

The dispute is separate from other legal issues involving Chesapeake, the second-largest natural gas producer in the United States.

Chesapeake, which faces a projected $3 billion cash shortfall this year, argues that it had until this past March 15 to notify noteholders that it intended to redeem the notes, which have an interest rate of 6.775 percent and mature in 2019, at par.

If it is not able to, the company will pay about $100 million in interest, one of its attorneys, Stephen Ascher, said in court on Tuesday.

The bank disagrees, arguing that Chesapeake had to complete any par redemption by March 15, and that any redemption thereafter requires it to pay an additional $400 million make-whole payment to investors.

The trial is expected to run through early next week. U.S. District Judge Paul Engelmayer is hearing the case without a jury.

At the trial's start, Ascher said the company's witnesses will include Chesapeake Chief Financial Officer Domenic Dell'Osso, who helped draft the bond offering. They will testify that it was understood that Chesapeake would have until March 15 to notify investors that it intended to redeem the bonds early, he said.   Continued...

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