Chesapeake Energy Corp. sued trustee Bank of New York Mellon Corp. (BK:US) in Manhattan federal court seeking to redeem more than $1.3 billion in notes early and avoid new interest, according to a court filing.
Chesapeake, an oil and natural gas producer based in Oklahoma City, said in a statement that it is asking a judge to confirm that a notice issued on or before March 15 will be timely to redeem the notes at par.
“Chesapeake has recently learned that BNY Mellon is operating under the misunderstanding that the deadline for issuing such notice has already passed,” and that the holders must also be paid future interest on the notes, due in 2019.
Chesapeake’s $1.3 billion of 6.775 percent notes climbed to a record today in a wager that the natural gas producer has run out of time to repurchase the debt at par, or 100 cents, as allowed by the debt’s covenants, according to Adam Cohen, the founder of Covenant Review, an independent research firm in New York.
Those securities have increased above par even though the bond covenant has a redemption provision based on a March 15 date. The debt traded at 105.3 cents at 3:57 p.m. in New York, to yield 5.73 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Some traders believe that the company is wrong that it can redeem the notes at par and that Chesapeake would have to pay a substantial premium if it wanted to repurchase them, Cohen said. If a so-called make-whole call provision were triggered, the company would have to pay bondholders as much $400 million in addition to the principal amount of the notes.
Amy Shipper, a Bank of New York Mellon spokeswoman, didn’t immediately respond to a request for comment on the lawsuit.
The case is Chesapeake Energy Corp. (CHK:US) v. The Bank of New York Mellon Trust Co., 13-cv-01582, U.S. District Court, Southern District of New York (Manhattan).
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