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Shareholders Sue $CHK Over Proposed Bond Redemption

“NEW YORK (Reuters) – Chesapeake Energy Corp is facing a showdown with investors and a bond trustee over its plan to redeem $1.3 billion of notes early.

The natural gas company, which faces a projected $3 billion cash shortfall this year, is hoping to avoid an extra $400 million of payments on the notes, which carry a 6.775 percent interest rate and mature in 2019.

Chesapeake filed a lawsuit last Friday in U.S. District Court in Manhattan seeking to block bond trustee Bank of New York Mellon Corp from interfering with the proposed redemption of the debt at 100 cents on the dollar, or par.

But in a court filing on Tuesday, investors who own roughly $250 million of the notes contended that the plan would shortchange them, saying the notes are worth more and that the move would violate Chesapeake’s contractual obligations.

Bank of New York Mellon also filed court papers opposing the redemption plan.

Jim Gipson, a Chesapeake spokesman, declined to comment.

Chesapeake believes it has the right to issue a notice of redemption by March 15 to avoid the extra $400 million payment, while the noteholders and Bank of New York Mellon believe that the actual redemption needs to take place by then….”

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