Daily GPI / Markets / NGI All News Access

Bank Responds as Chesapeake Petitions Supreme Court Over Bond Dispute

The Bank of New York Mellon Corp. is asking the U.S. Supreme Court to again reject Chesapeake Energy Corp.'s efforts to avoid paying investors more than $400 million in a four-year-old bond dispute.

On Feb. 2, Chesapeake filed a petition asking the Supreme Court to look at a ruling handed down last September by the U.S. Court of Appeals for the Second Circuit.

The facts in the case date back to Chesapeake’s time under the leadership of late co-founder Aubrey McClendon. The dispute hinges on whether Chesapeake owes lenders an additional $438 million on $1.3 billion in bonds issued beginning in 2012 after it redeemed those bonds past a contractual deadline for early redemption.

Chesapeake missed a March 15, 2013, deadline to redeem the bonds, providing notice of its plans to redeem prior to the deadline but not far enough in advance under the contract terms, according to court filings.

In its February petition to the Supreme Court, Chesapeake said it "sought (and won) a declaratory judgment in federal district court holding that its proposed course of action was valid and penalty-free under the contract."

But a New York district judge ruled against Chesapeake in 2015, ordering the company to pay nearly $380 million for improperly redeeming the bonds. That ruling was followed by the appeals court ruling, which also went against Chesapeake.

Chesapeake said it "proposed to make restitution as necessary to put the parties back in the positions they would have occupied had it not won and relied on the district court's unstayed judgment. But, instead, the district court and the Second Circuit held that Chesapeake had committed a full-blown breach of contract."

But the bank flatly rejected the merits of Chesapeake's petition, arguing in a March 22 brief to the high court that Chesapeake clearly owed bondholders the $438 payment under the terms of its contract. The bank said Chesapeake has no case law to support its position.

"Among all the precedential spaghetti petitioner throws at the wall, there is not a single case -- not one, ever, anywhere -- in which the existence of an appealed declaratory judgment has insulated a party to a contract from the contractually specified consequences of its breach," the bank's counsel wrote.

The bank went on to ask the court to uphold the contract and not "provide a perverse incentive to issuers to pursue eleventh-hour litigation.

"The simple fact is that Chesapeake gambled that its odds of winning on appeal and saving hundreds of millions of dollars...justified the risk of having to pay the make-whole price if it lost," the bank wrote. "Chesapeake lost that bet."

ISSN © 2577-9877 | ISSN © 1532-1231

Recent Articles by Jeremiah Shelor

Comments powered by Disqus