Chesapeake prevails in litigation, will redeem 6.775% bonds at par

By Angela McDaniels

Tacoma, Wash., May 8 - Chesapeake Energy Corp. said the U.S. District Court of the Southern District of New York has ruled in the company's favor, enabling it to redeem its $1.3 billion of 6.775% senior notes due 2019 at par.

Following a bench trial, judge Paul Engelmayer ruled that Chesapeake's March 15 notice to redeem the notes at par was timely and effective under the special early redemption provision of the notes. The company began this legal action on March 8 against the trustee for the notes, Bank of New York Mellon Trust Co., NA to confirm its right to redeem the notes at par.

Accordingly, the company will redeem the notes on May 13. It plans to do so even if the trustee appeals the court's ruling, unless the ruling is stayed, according to a company news release.

The company expects the redemption to save it more than $100 million of interest payments.

Background

As previously reported, the trustee and an ad hoc noteholder group, which holds about $250 million of the outstanding bonds, argued that the company would have to pay a make-whole premium in order to redeem the notes.

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

The company priced the notes in February 2012. During the early redemption period, the notes are redeemable at par. 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 was 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.

When the trustee and the noteholder group made their court filings on March 12, the notes had not yet been called, and because of the required notice period, they believed it was too late to redeem the notes before the early redemption period ended on March 15.

The case number was 13-cv-01582.

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

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