Chesapeake Ordered To Pay $379.7M For Tardy Bond Redemption Notice

Jul 10 2015 | 4:53pm ET

By Jonathan Stempel (Reuters) - A U.S. federal judge on Friday ordered Chesapeake Energy to pay $379.7 million to bond investors, after the natural gas company waited too long to tell them of its plan to redeem their $1.3 billion of bonds six years early.

U.S. District Judge Paul Engelmayer in Manhattan agreed with bond trustee Bank of New York Mellon Corp that holders of Chesapeake's 6.775% notes maturing in 2019 were entitled to a special "make-whole" price because of the early redemption.

The payout is more than triple the roughly $100 million that Chesapeake hoped to distribute in "restitutionary" damages.

It originally argued that its March 15, 2013 redemption notice entitled it to redeem the notes at face value, but a federal appeals court in November said that notice came one month late.

Bank of New York Mellon acted on behalf of a variety of hedge funds and other bondholders such as Ares Management, Aurelius Capital Management, P. Schoenfeld Asset Management and Taconic Capital Advisors.

"We are pleased with the court's decision vindicating the noteholders' interests," bank spokesman Kevin Heine said.

Chesapeake spokesman Gordon Pennoyer declined to comment.

Shares of Chesapeake closed down 31 cents, or 2.7 percent, at $11.37 in Friday trading.

The redemption was intended to help Chesapeake reduce a debt burden that the Oklahoma City-based company had accumulated under former Chief Executive Aubrey McClendon, and offset natural gas prices that had fallen to a decade low.

But Engelmayer, whose original ruling in Chesapeake's favor was reversed by the appeals court, said investors were entitled to hold Chesapeake to its obligations under the bond indenture, rather than accept lesser sums.

"Investors who decided to buy (or hold) the 2019 notes were beneficiaries of a contract," he wrote. "The interest in respecting investors' legitimate expectations therefore supports a payout keyed to the indenture's treatment of redemptions after March 15, 2013."

The notes were redeemed in May 2013 as part of a refinancing, and Chesapeake recorded a $33 million loss at the time.

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