* Judge sides with Chesapeake on early redemption of notes
* Bank, as bond trustee, said redemption notice was too late
* Chesapeake sees more than $100 mln savings
* Price of notes being redeemed tumbles
(Adds Bank of New York comment, investors who supported bank,
updates bond and stock prices)
By Jonathan Stempel
May 8 Chesapeake Energy Corp won the
right to redeem $1.3 billion of notes early, as a federal judge
rejected an argument by the notes' trustee, Bank of New York
Mellon Corp, that the company waited too long to tell
investors of its plans.
Chesapeake, the No. 2 U.S. natural gas company, said it
intends to refinance the notes, and that Wednesday's decision by
U.S. District Judge Paul Engelmayer in Manhattan will save it
more than $100 million in interest payments.
That could ease Chesapeake's debt burden and other strains
exacerbated by the lowest natural gas prices in a decade.
Engelmayer ruled that Chesapeake's March 15 notice to redeem
the 6.775 percent notes, which would have matured in 2019, did
not come too late.
He rejected the contention by Bank of New York Mellon that
Chesapeake had missed a deadline a month earlier. The redemption
price for the notes was 100 cents on the dollar plus interest.
"Chesapeake's notice was effective, not defective," and the
bank's interpretation of the bond documents was "tortured and
incoherent," Engelmayer wrote in a 92-page decision.
The evidence "convincingly establishes a meeting of the
minds among the negotiating parties as to the deadlines," he
added. "These parties intended and agreed that March 15, 2013,
would serve as the deadline for Chesapeake to give notice."
PRICE OF NOTES TUMBLES
Engelmayer held a week-long trial in late April, and ruled
before the scheduled May 13 redemption date.
Bank of New York Mellon spokesman Kevin Heine declined to
comment on the decision, and said the bank will continue to
represent bondholders' interests.
Domenic Dell'Osso, Chesapeake's chief financial officer, in
a statement said he was pleased with the decision.
By early afternoon, the price of the Chesapeake notes had
tumbled 7 cents on the dollar to 100.5 cents, with the yield
rising to 6.67 percent from 5.27 percent, according to bond
pricing service Trace.
Shares of Chesapeake rose 21 cents to $19.34 in
early-afternoon trading on the New York Stock Exchange.
Investors favoring the bank's view included Archer Capital
Management LP, Ares Management LLC, Aurelius Capital Management
LP, Carlson Capital LP, Cetus Capital LLC, Latigo Partners LLC,
Monarch Alternative Capital LP, P. Schoenfeld Asset Management
LP, River Birch Capital LLC and Taconic Capital Advisors LP.
Chesapeake has been cutting spending and focusing more on
drilling its best properties after former Chief Executive Aubrey
McClendon spent heavily and took on more debt to amass large
acreage positions in U.S. shale basins.
The Oklahoma City-based company plans to sell as much as $7
billion of assets, but faces a $3.5 billion gap this year
between estimated cash flow and capital expenses. It ended the
first quarter with $13.4 billion of long-term debt.
Chesapeake also faces other legal issues.
These include probes by the U.S. Securities and Exchange
Commission into a perk that gave McClendon a stake in company
wells, and by the U.S. Department of Justice into possible
antitrust violations over Michigan land deals.
McClendon stepped down as chief executive on April 1 and was
succeeded on an interim basis by Steve Dixon.
Chesapeake's board has also been overhauled, with several
directors installed by large investors, including Carl Icahn and
Mason Hawkins of Southeastern Asset Management.
The case is Chesapeake Energy Corp v. Bank of New York
Mellon Trust Co, U.S. District Court, Southern District of New
York, No. 13-01582.
(Reporting by Jonathan Stempel in New York; Additional
reporting by Anna Driver in Houston; Editing by John Wallace)