Investors ask to withdraw from Chesapeake bond dispute

Hedge fund investors challenging Chesapeake Energy Corp's plan to redeem $1.3 billion of notes without paying a $400 million make-whole payment have asked to withdraw from a lawsuit over the matter, allowing a bond trustee to argue on their behalf, according to court papers filed on Monday.

A withdrawal will "reduce the number of parties involved in the litigation and avoid potentially duplicative discovery efforts," Steven Bierman, a partner at Sidley Austin representing the investors, wrote in a letter to U.S. District Judge Paul Engelmayer in Manhattan federal court on Monday.

The embattled company sued this month to block bond trustee Bank of New York Mellon Corp from interfering with its proposed redemption of the debt at 100 cents on the dollar, or par.

The dispute is separate from other legal fights that Chesapeake, the second-largest natural gas producer in the United States, is facing. The U.S. Securities and Exchange Commission is probing a perk that granted outgoing chief executive Aubrey McClendon a stake in company wells and the U.S. Department of Justice is investigating possible antitrust violations in Michigan land deals.

Chesapeake believed it had until March 15 to notify noteholders of its intention to redeem the notes, which have an interest rate of 6.775 percent and mature in 2019.

But the bank and owners of roughly $250 million of the notes disagreed, arguing that Chesapeake would owe an additional $400 million make-whole payment.

On Saturday, Bank of New York Mellon hired Sidley Austin to represent it alongside its existing law firm, Emmet, Marvin & Martin, according to Bierman's letter.

A trial is scheduled for April 23.

Chesapeake has said it wants to redeem the notes early as part of a broader plan to refinance debt.

Neither Chesapeake nor Bierman immediately responded to requests for comment. Bank of New York Mellon declined to comment.

The case is Chesapeake Energy Corp v. Bank of New York Mellon Trust Co, U.S. District Court, Southern District of New York, No. 13-01582.

(Reporting By Bernard Vaughan. Editing by Andre Grenon)