Distressed bondholders should pay careful attention to a decision expected this fall from the U.S. Court of Appeals for the Second Circuit in Chesapeake Energy Corp. v. Bank of New York Mellon Trust Company. The decision will resolve an appeal of a controversial 2013 decision from the U.S. District Court for the Southern District of New York finding that Chesapeake Energy Corporation had the right to redeem certain unsecured notes at par value plus interest because the period during which the company could redeem the notes on such terms had not expired.1 More importantly, the Second Circuit decision will likely address the extent to which courts can examine non-public extrinsic evidence, specifically earlier drafts of an indenture, in interpreting ambiguous indenture provisions. Any guidance from the Second Circuit on this issue may significantly impact bondholder disputes pending in district courts within the Second Circuit and other jurisdictions related to the correct interpretation of disputed indenture provisions.

Factual Background

On March 15, 2013, Chesapeake, a large U.S. oil and gas company, issued a notice to redeem approximately $1.3 billion in 6.775 percent senior notes due in 2019 (2019 Notes). Before doing so, it filed a complaint in the U.S. District Court for the Southern District of New York requesting a declaration that any such notice provided by March 15 would be timely and effective to redeem the 2019 Notes at par plus interest. Chesapeake filed the complaint because BNY Mellon and certain holders of the 2019 Notes asserted that the deadline to redeem 2019 Notes at the special early redemption price had expired.

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