Chesapeake Energy, bondholders, trustee spar over make-whole premium

By Angela McDaniels

Tacoma, Wash., March 12 - Chesapeake Energy Corp. wants to redeem its 6.775% senior notes due 2019 at par, but the indenture trustee and an ad hoc noteholder group believe that the company must pay a make-whole premium if it redeems the notes.

Having to pay the make-whole premium would cost Chesapeake $400 million.

The company filed a lawsuit on Friday. Indenture trustee Bank of New York Mellon Trust Co., NA and the ad hoc noteholder group, which holds about $250 million of the outstanding bonds, responded with their own court filings on Tuesday.

The company has not yet issued a redemption notice. Its proposed redemption notice has May 13 as the redemption date, according to the trustee's court filing.

The company priced $1.3 billion of the notes in February 2012. During the early redemption period, the notes are redeemable at par provided that the redemption would leave at least $250 million of the notes outstanding. After the early redemption period, the notes are redeemable at par plus a make-whole premium.

The early redemption period is defined as Nov. 15 to and including March 15.

At issue is the parties' differing interpretations of whether the redemption must be actually made during the early redemption period or whether the company only needs to provide notice during that period.

On page S-7 of the prospectus supplement for the notes filed with the Securities and Exchange Commission, the company said it may redeem the notes under the special early redemption provisions "so long as the notice of redemption is given during the early redemption period." The prospectus supplement also said redemption notices will be mailed at least 30 days before the redemption date.

The trustee and the noteholder group believe that because of the required notice period, it is too late to redeem the notes before the early redemption period ends on March 15.

"Chesapeake, having missed the deadline to redeem the notes at par, now demands an advisory opinion from the court, seeking to guarantee the idiosyncratic treatment of a future redemption notice which has not yet been made," Bank of New York Mellon said in its court filings.

The case has been assigned to judge Paul Engelmayer of the U.S. District Court of the Southern District of New York. The case number is 13-cv-01582.

Chesapeake Energy is an oil and natural gas company based in Oklahoma City.

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