Bank of New York Mellon Corp. (BK:US), the world’s biggest custody bank, is appealing a ruling allowing Chesapeake Energy Corp. (CHK:US) to proceed today with redeeming $1.3 billion in bonds six years early at 100 cents on the dollar.
A notice of the appeal was filed May 11 in federal court in Manhattan. BNY Mellon, the trustee for the notes, seeks reversal of U.S. District Judge Paul Engelmayer’s May 8 ruling that Chesapeake met a deadline in the notes’ indenture contract for calling the bonds early at par.
Chesapeake, the second-biggest producer of natural gas in the U.S., has said a plan to refinance the debt, set to be executed today, will save about $100 million by tapping lower interest rates. Investors including River Birch Capital LLC had challenged the company’s plan and sided with BNY Mellon in the case.
Chesapeake sued BNY Mellon in March after the New York-based bank challenged its bid to redeem the notes. The energy company argued the March 15 deadline in the indenture was for sending a notice of early redemption to investors. The bank argued the date was for such a call to be executed, and that notice should have been sent at least a month earlier.
A three-day non-jury trial last month focused on what decision-makers at Chesapeake intended at the time the indenture was drafted, and what investors expected after the debt was issued. Engelmayer ruled that although the indenture contract could have been worded more clearly when describing the deadline, it should have been obvious that Chesapeake intended to give notice of an early call as late as March 15.
‘Tortured and Incoherent’
BNY Mellon (BK:US)’s interpretation of the indenture was “tortured and incoherent,” Engelmayer said in the ruling.
“We are confident in the legal basis of the ruling and expect to prevail on appeal,” Paul Caminiti, an outside spokesman for Chesapeake with Sard Verbinnen & Co., said yesterday in an e-mail. “The filing does not stay the ruling in Chesapeake’s favor, and the redemption of the notes will go forward on Monday as Chesapeake previously announced.”
In court hearings before the trial, neither party could explain to the judge how an appeal might work, since the early redemption has already been put in motion and is scheduled to be executed today.
BNY Mellon initially agreed with Oklahoma City-based Chesapeake in February that the early redemption would meet the deadline. The bank changed its position after River Birch argued Chesapeake had started the process too late, Chesapeake said in court papers.
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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