Chesapeake Energy Corp. (CHK:US) employees’ confusion over the terms of a $1.3 billion bond issue will weigh on a decision about whether it can redeem the notes early at par and take advantage of lower interest rates, a judge said.
Chesapeake’s lawsuit against Bank of New York Mellon (BK:US) Corp., the trustee for the notes, neared resolution yesterday after a three-day non-jury trial came to an end in Manhattan federal court. U.S. District Judge Paul Engelmayer scheduled an April 30 hearing for additional closing statements.
Engelmayer asked the companies to submit over the weekend written arguments about how much weight he should give evidence of the confusion, and how a “reasonably intelligent person” would have interpreted the March 15 deadline for an early redemption of the 6.775 percent notes due March 2019.
Chesapeake, second-biggest producer of natural gas in the U.S., sued BNY Mellon last month after the bank said the company had missed the deadline to call the notes early at par. At stake is Oklahoma City-based Chesapeake’s bid to refinance the debt and save about $100 million by getting lower interest rates.
The energy company argued that the deadline -- listed in the indenture paperwork for the notes -- was for notifying investors of the early call, and that it had another 30 days to complete the transaction. New York-based BNY Mellon said the early call needed to be announced in February and completed by March 15.
Elliot Chambers, Chesapeake’s assistant treasurer and vice president of finance, thought as recently as Jan. 9 that the company would need to complete the early call by March 15 to do so at par, according to internal e-mails submitted in the case.
Called as a witness by Bank of New York Mellon, he testified April 24 that his previous view was mistaken.
Engelmayer said today he may also consider the customary meaning of “redeem” in the securities industry in deciding whether to block the early call.
The judge, who is presiding over the case on an emergency basis, has said he’ll aim to rule by May 9, less than a week before the early call is scheduled to be formally executed.
The case is Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., 13-cv-01582, U.S. District Court, Southern District of New York (Manhattan).
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