Chesapeake Energy Corp. was denied a request for an emergencycourt ruling allowing it to start redeeming $1.3 billion in notesearly without automatically incurring the risk of paying about $400million in interest sought by Bank of New York Mellon Corp.

Chesapeake had sought a ruling saying it could issue a notice tobondholders by tomorrow informing them it will redeem the 6.775percent notes at par, or 100 cents on the dollar, six years beforethey mature. BNY Mellon, as trustee, said the company missed thedeadline for such a redemption.

Chesapeake told the judge before the ruling was that they didn'tplan to redeem the notes if they didn't get a favorable ruling.

U.S. District Judge Paul Engelmayer in Manhattan left open thepossibility of a trial over the interpretation of the deadline.Chesapeake, the second-biggest U.S. natural-gas producer, arguedthat March 15 is the final date it can issue the formal notice ofearly redemption and avoid a so-called make-whole provision, whileBNY Mellon said it's the deadline by which the call would need tobe completed, and thus it's too late to start the process.

The judge also suggested that Chesapeake would have a goodchance of defeating the provision that would automatically requireChesapeake to pay the $400 million in interest. He still refused toblock the make-whole provision because Chesapeake hadn't proved itwould suffer irreparable harm if it was triggered. The judge wasskeptical of the view of BNY Mellon and a group of investors thatintervened in the case, that they could treat the call as a makewhole redemption that would include the extra interest.

The $1.3 billion of 6.775 percent notes due March 2019 rose 2.5cents on the dollar to 108 cents to yield 5.2 percent at 4:30 p.m.in New York, according to Trace, the bond-price reporting system ofthe Financial Industry Regulatory Authority.

Michael Kehs, a spokesman for Oklahoma City-based Chesapeake,declined to comment when contacted by telephone after the hearing.The company's outside spokesman, Paul Caminiti, declined to commentoutside court after meeting with Chesapeake's lawyer.

The judge asked the parties to report to him by March 18 whatthey plan to do in light of his ruling. He offered to have a trialcompleted within 60 days.

The case is Chesapeake Energy Corp. v. Bank of New York MellonTrust Co., 13-cv-01582, U.S. District Court, Southern District ofNew York (Manhattan).

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.