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On May 8, 2013, the U.S. District Court for the Southern District of New York issued its opinion and order in favor of firm client Chesapeake Energy Corporation, in its declaratory judgment action against Bank of New York Mellon Trust Company, the trustee for a $1.3 billion bond offering – saving Chesapeake some $100 million in interest expense.
The complicated civil litigation went from initial complaint to trial in only six weeks. Chesapeake sued BNY Mellon to challenge BNY Mellon’s determination that Chesapeake missed a contractual deadline to issue a notice exercising its right to redeem the $1.3 billion in notes at par. Chesapeake wanted to redeem the notes at par so that it could refinance the $1.3 billion in debt and save approximately $100 million in interest expense, in net present value terms.
The firm initiated the action in the SDNY on March 8, 2013, to obtain a declaration that a notice issued by March 15, 2013 was “timely and effective” to effect a redemption at par. Chesapeake also sought a declaration that if the notice was untimely, it would be deemed null and void and would not be effective to effect a redemption at a different, much higher “make-whole” price that would have cost Chesapeake an additional $400 million.
On behalf of the client, the firm’s team requested a ruling before the May 13 redemption date specified in Chesapeake’s March 15 notice to redeem at par, and on March 19, Judge Paul Engelmayer agreed to try the case on that schedule. After expedited discovery, the bench trial was held between April 23 and April 30.
The ruling is a complete victory for the firm’s client. The Court held that the contract in question was "clear and unambiguous" in giving Chesapeake the right to issue a notice to redeem at par up until March 15. The Court also held that even if the contract was not clear and unambiguous, extrinsic evidence demonstrated that the drafters intended for Chesapeake to have the right to give notice until March 15.
Because the court adopted the firm’s position that the March 15 notice of redemption was timely and effective, it did not need to reach the question of whether the notice, if untimely, would effect a redemption at the higher "make-whole" price.