Chesapeake Energy Loses Appeal In $438.7M Bond Dispute

Reuters

NEW YORK, Sept 15 (Reuters) - A federal appeals court on Thursday rejected Chesapeake Energy Corp's effort to avoid having to pay $438.7 million, including interest, to investors in a bond dispute.

By a 3-0 vote, a panel of the 2nd U.S. Circuit Court of Appeals in Manhattan said the payout was justified after the natural gas company had waited too long to tell bondholders of its plan to redeem $1.3 billion of their debt six years early.

The court agreed with bond trustee Bank of New York Mellon Corp that hedge funds and other holders of Chesapeake's 6.775 percent notes maturing in 2019 were contractually entitled to a special "make-whole" price because of the early redemption.

"To hold otherwise would frustrate the noteholders' legitimate expectations regarding their rights," the court said.

The May 2013 redemption was intended to help Chesapeake reduce a debt burden that the Oklahoma City-based company had accumulated under Aubrey McClendon, then its chief executive, and offset natural gas prices that had sunk to a decade low.

"We are disappointed with the ruling and will continue to pursue our legal options," Chesapeake spokesman Gordon Pennoyer said. "We were prepared for this potential outcome and have reserved the liquidity to address it."

The payout comprised $379.7 million of contract-based damages, plus roughly $59 million of interest. That compared with the about $100 million that Chesapeake had hoped to distribute in "restitutionary" damages.

Bank of New York Mellon acted as trustee on behalf of investors such as Ares Management LLC, Aurelius Capital Management LP, P. Schoenfeld Asset Management LP and Taconic Capital Advisors LP.

The bank did not immediately respond to requests for comment.

Thursday's decision upheld a July 2015 ruling by U.S. District Judge Paul Engelmayer in Manhattan.

McClendon died on March 2 when his vehicle slammed into a concrete bridge abutment in Oklahoma. A medical examiner in June ruled the fiery crash an accident.

The case is Chesapeake Energy Corp v. Bank of New York Mellon Trust Co, 2nd U.S. Circuit Court of Appeals, No. 15-2366.

(Reporting by Jonathan Stempel in New York; Editing by Marguerita Choy and Bill Trott)

Copyright 2016 Thomson Reuters. Click for Restrictions.

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