☰ Menu
Ohio Utica Shale

Chesapeake Energy in court against bank in bond redemption case

By Bob Downing Published: April 11, 2013

From Bloomberg News:

By Erik Larson

Apr 11, 2013 12:26 AM ET



Chesapeake Energy Corp. (CHK) is seeking a court order for Bank of New York Mellon Corp. to hand over e-mails showing the motive behind its bid to block the natural gas company from redeeming $1.3 billion in bonds early at par.

BNY Mellon, the trustee for the notes due March 2019, and investor River Birch Capital LLC, which initiated the challenge, haven’t disclosed documents showing how their views on the early call developed, Chesapeake said in an April 8 letter to U.S. District Judge Paul Engelmayer in Manhattan.

Bank of New York Mellon initially agreed with Chesapeake in February that the early redemption, made on March 15, would meet a deadline for the second-biggest natural gas producer in the U.S. to redeem the notes six years early at 100 cents on the dollar and avoid paying bondholders $400 million in “make whole” interest. The trustee changed its position after River Birch argued Chesapeake had started the process too late.

BNY Mellon and River Birch have refused to produce documents explaining the origins of this dispute,” Stephen Ascher, one of Chesapeake’s lawyers from Jenner & Block LLP in New York, said in the letter. “Chesapeake is plainly entitled to cross-examine BNY’s witnesses on their bias and motive.”

BNY Mellon should have turned over the e-mails as part of the pre-trial exchange of information, Chesapeake said in the letter. A hearing on Chesapeake’s request for evidence is scheduled for today at 8:30 a.m. in New York.

Court Ruling

Yesterday, a federal judge in Oklahoma City threw out an investors’ lawsuit claiming Chesapeake misled the public about the company’s true financial condition and about financial obligations incurred by its now-former chief executive officer, Aubrey McClendon.

“This is the lead case against Chesapeake, and the first ruling in which a court has addressed the merits of the claims that have been asserted against the company and members of its management team,” Robert Varian, a lawyer for Chesapeake, said in an e-mailed statement from the company. “We are pleased with the court’s complete rejection of the claims, which were based on unfounded accusations that were given widespread attention in the media.”

Chesapeake contends the March 15 deadline stated in the indenture was for the notice of early redemption to be sent to noteholders, while BNY Mellon claims the call would need to be formally completed by that date.

April 23 Trial

BNY Mellon, based in New York, and Chesapeake are scheduled to face off at trial beginning April 23 over the Oklahoma City-based gas producer’s claim that it made the call on time. Both sides argue the language in the indenture documents backs their respective interpretations of the March 15 deadline.

Chesapeake wants River Birch to hand over documents related to its decision to buy the 2019 notes, as well as its communications with other investors in the bonds, according to the letter. The gas company said it wants to know whether River Birch’s purchase of the notes in February was a bid to speculate on ambiguity over the deadline for an early call.

Engelmayer, in earlier court hearings, has called the language in the indenture “ambiguous” and said he would rush the trial to resolve the dispute before Chesapeake formally executes the early call in mid-May.

A message left at River Birch seeking comment yesterday on the letter wasn’t immediately returned. Steven Bierman, a lawyer for the company and other investors that had intervened in the case, didn’t return a call yesterday seeking comment on the letter.

Kevin Heine, a BNY Mellon spokesman, declined to comment on the dispute over the requested e-mails.

Trial Witnesses

Chesapeake, which sued the bank on March 8, needs the evidence to prepare its cross-examination of BNY Mellon’s trial witnesses, according to the letter. River Birch isn’t a defendant in the case.

Last month, River Birch held $16.7 million of the securities, some of which it bought Feb. 15 after it believed Chesapeake had missed the window to redeem the notes at par, said James Seery Jr., a lawyer at the hedge fund, in a March 12 letter to the court.

Bank of New York Mellon said it would call Seery as a witness at trial and later offered to take him off the witness list “to avoid discovery from River Birch,” Chesapeake said in the letter. The only condition was that the energy company had to agree to “not ever assert that River Birch ‘held any influence over BNY,’” according to the letter.

McClendon Deposition

McClendon will be deposed as part of a lawsuit, as will other people who may have information about the decision to make the early call and what the March 15 deadline was intended to mean at the time the notes were issued.

Chesapeake issued the bonds in February 2012, just before it was disclosed that McClendon, a company co-founder, had been using his personal 2.5 percent stakes in some Chesapeake wells as collateral for loans that weren’t fully disclosed to shareholders.

A group of noteholders with about $250 million in the 2019 bonds had intervened in the lawsuit to make their arguments in court. The group later dropped out of the case.

Chesapeake made the early call after the lawsuit was filed because Engelmayer said in court he didn’t think the investors had a strong case for seeking the make-whole payment, regardless of whether the deadline was met. Chesapeake has said it will cancel the early call if it loses the case.

The case is Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., 13-cv-01582, U.S. District Court, Southern District of New York (Manhattan).



See the most recent drilling report and an injection wells map From
Prev Next

Utica and Marcellus shale web sites

Ohio Department of Natural Resources' Division of Oil and Gas Resources Management State agency Web site.

ODNR Division of Oil and Gas Resources Management. State drilling permits. List is updated weekly.

ODNR Division of Geological Survey.

Ohio Environmental Protection Agency.

Ohio State University Extension.

Ohio Farm Bureau.

Ohio Oil and Gas Association, a Granville-based group that represents 1,500 Ohio energy-related companies.

Ohio Oil & Gas Energy Education Program.

Energy In Depth, a trade group.

Marcellus and Utica Shale Resource Center by Ohio law firm Bricker & Eckler.

Utica Shale, a compilation of Utica shale activities.

Landman Report Card, a site that looks at companies involved in gas and oil leases.FracFocus, a compilation of chemicals used in fracking individual wells as reported voluntarily by some drillers.

Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.

Rig Count Interactive Map by Baker Hughes, an energy services company.

Shale Sheet Fracking, a Youngstown Vindicator blog.

National Geographic's The Great Shale Rush.

The Ohio Environmental Council, a statewide eco-group based in Columbus.

Buckeye Forest Council.

Earthjustice, a national eco-group.

Stop Fracking Ohio.

People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.

Concerned Citizens of Medina County, a grass-roots group.

No Frack Ohio, a Columbus-based grass-roots group.

Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.

Penn State Marcellus Center.

Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.

Allegheny Front, environmental public radio for Western Pennsylvania.