A federal judge in New York sided with Chesapeake Energy Corp. on Wednesday in its dispute with a bank over the early redemption of bonds issued in 2012, a decision that could save the energy company more than $100 million.
Testimony in the bench trial before U.S. District Judge Paul A. Engelmayer turned on what the parties interpreted as the deadline for notice for early redemption of $1.3 billion in senior notes due in 2019. Chesapeake said it had until March 15, while attorneys for The Bank of New York Mellon Trust Co. and several hedge funds said the deadline was in mid-February.
The senior notes due in 2019 had an interest rate of 6.775 percent but had a special provision allowing the company to redeem them early at face value plus interest, without paying the full amount of interest accruing over seven years.
Chesapeake issued the notes in February 2012 to help cover a funding gap until it made some planned asset sales later in the year.
Chesapeake would have to pay about $400 million more to redeem the notes if it failed to meet the notice deadline for the special early redemption period, which was from Nov. 15, 2012, to March 15.
Engelmayer said the section governing the special early redemption period was imperfectly written but the competing interpretations became clear at trial.
“One (Chesapeake's) is imperfect but reasonable,” he wrote. “The other (BNY Mellon's) is incoherent and unreasonable.”
An attorney for Bank of New York Mellon did not respond to requests for comment.
With Wednesday's ruling, Chesapeake said it will proceed with the special early redemption of the notes as part of a broader refinancing of its outstanding debt. It expects payment on the 2019 notes to be made May 13.
“We are pleased that the court has ruled in Chesapeake's favor,” Domenic Dell'Osso, Chesapeake's chief financial officer, said in a statement. “We expect the refinancing of the notes to save the company more than $100 million in interest payments.”