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Judge suggests April trial date for Chesapeake bond fight

By Bernard Vaughan

NEW YORK (Reuters) - A federal judge on Tuesday set a tentative trial date of April 23 for Chesapeake Energy Corp's dispute with investors and a bond trustee over its plan to redeem $1.3 billion in notes early.

U.S. District Judge Paul Engelmayer also said he would not be bound by a ruling he issued last week, in which he suggested noteholders who oppose the plan on the grounds that Chesapeake missed a critical deadline had a slightly better argument.

"That was really a preliminary reaction" based on the evidence he'd seen by that time, Engelmayer said Tuesday.

The natural gas company filed a lawsuit earlier this month 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.

Chesapeake believed it had until March 15 to notify noteholders of its intention to redeem the notes, which have a principal amount of $1.3 billion, an interest rate of 6.775 percent, and are due in 2019.

But investors who own roughly $250 million of the notes argue the company had to redeem the notes by March 15. The company owes them an additional $400 million make-whole payment for any redemption that occurs after March 15, they argue.

Bank of New York Mellon also opposed Chesapeake's view of the March 15 deadline.

Any other noteholders who oppose Chesapeake's plan to redeem the notes at the more favorable rate must present themselves by Friday, Engelmayer, who will rule on the trial without a jury, said at the hearing Tuesday.

Last Thursday, Engelmayer denied Chesapeake a court order allowing it to redeem the notes early at the more favorable price. But he also made it clear that Chesapeake would likely not be subject to the make-whole payment if it issued the redemption notice and he later ruled it did so too late.

Encouraged by that aspect of Engelmayer's ruling, Chesapeake on Friday announced that it would try to redeem $1.3 billion of notes at par. Chesapeake has said it wants to redeem the notes early as part of a broader plan to refinance debt.

The dispute is separate from a U.S. Securities and Exchange Commission probe over a perk that granted Chesapeake's departing chief executive, Aubrey McClendon, a stake in company wells. In addition, the U.S. Department of Justice is examining possible antitrust violations over Chesapeake land transactions in Michigan.

As they prepare for trial, attorneys for the noteholders are interested in reviewing materials Chesapeake used to market the notes and communications it had with ratings agencies, said Benjamin Nagin, one of the attorneys.

In Tuesday trading, the 6.775 percent notes fell 0.2 cents on the dollar to 104.3 cents, boosting their yield to 5.91 percent from 5.87 percent, according to bond pricing service Trace. The price had reached as high as 108 cents last week after Chesapeake lost its bid for a preliminary injunction.

Shares of Chesapeake closed Tuesday down $1.13, or 5.1 percent, at $21.04 on the New York Stock Exchange.

A representative for Chesapeake was not immediately available for comment.

The case is Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co NA, U.S. District Court, Southern District of New York, No. 13-01582.

(Reporting By Bernard Vaughan, Jonathan Stempel; Editing by Michael Perry)

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