UPDATE 1-Chesapeake noteholders, BNY Mellon escalate bond battle
* Noteholders say redemption would shortchange them
Chesapeake seeks rights as to 6.775 pct notes due 2019
* Trustee Bank of NY Mellon also opposes Chesapeake
* Price of notes rises further above face value
March 12 (Reuters) - A group of Chesapeake Energy Corp noteholders on Tuesday challenged the company's authority to redeem $1.3 billion of notes, saying the plan was improper and would shortchange them.
The natural gas company, in a lawsuit on Friday, asked a Manhattan federal judge to declare that it had until March 15 to tell investors of its right to redeem the notes, and to block bond trustee Bank of New York Mellon Corp from interfering.
Chesapeake said it feared having to pay an additional $400 million to holders of the 6.775 percent senior notes maturing in 2019 if it waited until after that date.
But the noteholders, who own about $250 million of the notes and were not earlier part of the lawsuit, sought to intervene.
They said that in seeking a preliminary injunction against the bank, Chesapeake was trying to renege on its contractual obligations by seeking authority to buy back the notes at 100 cents on the dollar, or par, rather than at a premium.
The request should be denied because of Chesapeake's "utter failure to demonstrate any irreparable harm, likelihood of success on its claims, or that the balance of hardships on its motion tip decidedly in Chesapeake's favor," the noteholders said.
Bank of New York Mellon also opposed the injunction request, calling it premature and likely to fail on the merits.
"Chesapeake, having missed the deadline to redeem the notes at par, now demands an advisory opinion from the court, seeking to guarantee the idiosyncratic treatment of a future redemption notice which has not been made," the bank said. "Chesapeake has suffered no injury and lacks standing."
Jim Gipson, a Chesapeake spokesman, declined to comment.
In morning trading, the 6.775 percent notes traded up 2.5 cents at 105.5 cents on the dollar, with a yield of 5.68 percent, according to bond pricing service Trace.
Chesapeake shares were up 2 cents at $21.48 on the New York Stock Exchange.
In a separate court filing, James Seery, who said he is a partner at noteholder River Birch Capital LLC, said that under the contract, the redemption price should now be about 129 cents on the dollar, not 100 cents.
"The relief sought by the company contravenes the express terms of the 2019 notes and the indenture governing the notes," Seery said. "If granted, even temporarily, River Birch and the other note holders will suffer material monetary damages."
U.S. District Judge Paul Engelmayer in Manhattan has scheduled an afternoon hearing to discuss Chesapeake's request.
Chesapeake has said its proposed action was part of a broader plan to refinance its debt.
The U.S. Securities and Exchange Commission is separately investigating Chesapeake and its soon-to-depart Chief Executive Aubrey McClendon over a perk that granted him a stake in the company's wells.
The case is Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co NA, U.S. District Court, Southern District of New York, No. 13-01582.