The Country Caller takes a look at why Chesapeake has to pay $438 million to bondholders
Chesapeake Energy Corporation (NYSE:CHK) has done well to bring in efficiencies and improve investor sentiment. The stock has risen in the past six months more than 60%. The company was thrashed by investors due to a more than 50% decline in crude oil prices. During the beginning of the year, there were rumors that the company might go bankrupt but the management has done well to put these rumors aside.
Chesapeake is trying its best to mitigate costs and save precious cash in order to maintain liquidity due to the monumental decline in crude oil prices. On Thursday, the company faced a minor blow as the federal appeal court passed a decision against it.
According to Reuters, Chesapeake’s efforts to avoid a payment of as much as $438.7 million went against its favor, as the US Federal appeals court asked it to make the payment. The decision was unanimously agreed by 3-0 vote.
Chesapeake, according to the court, had taken a fair bit of time in telling its bondholders that it had plans to redeem its $1.3 billion worth of bonds in 2013. The parties standing against the company, including Bank of New York Mellon Corp and holders of Chesapeake 6.77% notes expiring in 2019, believed that due to the early redemption the company sought to a special “make-whole” price.
Chesapeake was disappointed following the ruling and regarding the issue said, “We are disappointed with the ruling and will continue to pursue our legal options.” It added, “We were prepared for this potential outcome and have reserved the liquidity to address it.”
This comes as a bad development for Chesapeake who in the current environment was undertaking efforts to reduce debt. We would have to wait and look how the company utilizes its legal options.