United States District Judge Paul Engelmayer criticized the proposal of The Bank of New York Mellon Corporation (NYSE:BK) and the ad hoc note holder group to compel Chesapeake Energy Corporation (NYSE:CHK) to pay $400 million additional interest if it loses its case related to the early redemption of notes, according to report from Bloomberg.
Chesapeake Energy Corporation (NYSE:CHK) filed a case to the court asking the judge to confirm the notice, that will be issued on or before March 15, 2013, will be timely and effective as the company aims to redeem the senior notes at par prior to the due date. The oil and natural gas producer wants to issue the notice in accordance with the Special Redemption provision of the note.
Judge Engelmayer described the motion of the Bank of New York Mellon Corporation (NYSE:BK) and the adhoc note holder group in asking the court to automatically compel Chesapeake Energy Corporation (NYSE:CHK) to redeem the notes at a higher "make whole price” as “trickery.” According to the judge, the bank's and note holders' request and is just like “holding a sword” directed against the oil and natural gas producer.
Judge Engelmayer is scheduled to make a decision tomorrow as to whether he will grant Chesapeake Energy Corporation (NYSE:CHK) a preliminary injunction allowing the oil and natural gas producer to inform note holders regarding its intention to redeem the 6.775 percent notes at par before its maturity date in 2009.
During a hearing yesterday, Chesapeake Energy Corporation (NYSE:CHK) argued that March 15 is the deadline for the issuance of formal notice regarding the early redemption to prevent the payment of additional interest under the make whole provision. On the other hand, The Bank of New York Mellon Corporation (NYSE:BK) contended that it was the final date the call should be completed, and emphasized that starting the process is already too late.
Judge Engelmayer opined that the disagreement regarding the March 15 deadline could be theoretically resolved separately from the make whole penalty since Chesapeake Energy pointed out that it has no intention of redeeming the notes unless it has the capacity to do so at par.
Chesapeake Energy filed its case against the bank claiming that it misinterpreted the deadline on March 8. The Bank of New York Mellon Corporation (NYSE:BK) argued in court that the oil and natural gas producer should be denied its request because it will not suffer from irreparable damage, and lacks court standing.
Richard Ziegler, the attorney representing Chesapeake Energy pointed out that the injunction should be granted because the absence of such a ruling poses a bigger potential harm to the company than to investors who are used to managing, buying and selling notes based on a wide range of events that are common in the marketplace.
“One wouldn’t want to pay out six years of interest and get no benefit.” According to him, the note holders “will get an incredible windfall” from a make-whole payment, which they don’t deserve," Ziegler said.
The Bank of New York Mellon Corporation (NYSE:BK) is the indenture trustee of the senior notes. The ad hoc note holder group filed a separate case yesterday asking the court to allow them to intervene. The court granted their request. The ad hoc note holder group include 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.