Tuesday's 2-1 decision by the 2nd U.S. Circuit Court of Appeals in New York reversed a May 2013 ruling by U.S. District Judge Paul Engelmayer that had allowed Chesapeake to redeem the notes six years early.

The majority agreed with bond trustee Bank of New York Mellon Corp that Chesapeake's March 15, 2013 notice to redeem its 6.775 percent notes maturing in 2019, saving more than $100 million of interest payments, came one month late.

Bank of New York Mellon argued that the redemption could shortchange hedge funds and other bondholders, and that "the only fair and practical way" to treat them was to interpret any ambiguity in the bond documents against Chesapeake.

Investors favoring the bank's view included Archer Capital Management LP, Ares Management LLC, Aurelius Capital Management LP, Carlson Capital LP, Cetus Capital LLC, Latigo Partners LLC, Monarch Alternative Capital LP, P. Schoenfeld Asset Management LP, River Birch Capital LLC and Taconic Capital Advisors LP.

Chesapeake said in a statement: "We are reviewing this decision and assessing our options." Bank of New York Mellon spokesman Kevin Heine declined immediate comment.

The redemption was intended to ease a debt burden that Oklahoma City-based Chesapeake had accumulated under former Chief Executive Aubrey McClendon, and offset natural gas prices that had fallen to their lowest in a decade.

Writing for the appeals court majority, Circuit Judge Pierre Leval said bond documents showed "unambiguously" that Chesapeake missed its deadline to redeem its notes at 100 cents on the dollar plus interest.

He returned the case to Engelmayer, who had ruled after a week-long non-jury trial, to consider whether Chesapeake should pay a "substantially higher make-whole price," which court papers said could cost the company more than $400 million.

U.S. District Judge Katherine Polk Failla dissented from the majority decision, saying more scrutiny was needed of Chesapeake's intent in drafting the bond documents.

Chesapeake redeemed its notes in May 2013, recording a $33 million loss, as part of a refinancing. Bank of New York Mellon continued its appeal on behalf of affected bondholders.

The case is Chesapeake Energy Corp v. Bank of New York Mellon Trust Co, 2nd U.S. Circuit Court of Appeals, No. 13-1893.

(Editing by Lisa Von Ahn and Chizu Nomiyama)

By Jonathan Stempel