“(Reuters) – In a direct challenge to its bondholders, Chesapeake Energy Corp on Friday went ahead with its plan to buy back $1.3 billion of notes early.
Chesapeake, the second-largest U.S. natural gas company, said it issued a notice to redeem the bonds, 6.775 percent notes maturing in 2019, at 100 cents on the dollar, or par.
It is pursuing the redemption despite failing at a Thursday hearing to persuade U.S. District JudgePaul Engelmayer in Manhattan to force bond trustee Bank of New York Mellon Corp to accept the plan.
Bank of New York Mellon and investors holding $250 million of the notes oppose the proposed redemption, saying Chesapeake acted too late.
The investor group argued that any redemption should include an extra “make-whole” payment that Chesapeake has said could cost it an extra $400 million.
Chesapeake is hoping to avoid the $400 million payment as it tries to close a potential $4 billion cash shortfall this year.
In morning trading, the price of the notes fell 3.25 cents to 104 cents on the dollar, boosting the yield to 5.97 percent from 5.34 percent, according to bond pricing service Trace. The price had risen to a record high of 108 cents on Thursday.
The dispute is separate from a U.S. Securities and Exchange Commission probe into a perk that granted Chesapeake’s departing chief executive, Aubrey McClendon, a stake in company wells, and a U.S. Department of Justice probe into possible antitrust violations over Michigan land transactions.
In denying Chesapeake’s request for a preliminary injunction, Engelmayer said the company had not shown it would suffer irreparable harm without one….”
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