A divided federal appeals court said Chesapeake Energy Corp had no right to redeem $1.3 billion of notes early at a favorable price, saying the second-largest U.S. natural gas company waited too long to tell investors of its plans.
Tuesday's 2-1 decision by the 2nd U.S. Circuit Court of Appeals in New York reversed a May 2013 ruling by U.S. District Judge Paul Engelmayer that had allowed Chesapeake to redeem the notes six years early.
The majority agreed with bond trustee Bank of New York Mellon Corp that Chesapeake's March 15, 2013 notice to redeem its 6.775 percent notes maturing in 2019, saving more than $100 million of interest payments, came one month late.
Bank of New York Mellon argued that the redemption could shortchange hedge funds and other bondholders, and that "the only fair and practical way" to treat them was to interpret any ambiguity in the bond documents against Chesapeake.The loss could cost Chesapeake Energy upwards of $400 million.
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