Chesapeake Bondholders Asked to Choose 2% Recovery or Litigation

Chesapeake Energy Corp. bondholders owed $3.4 billion by the bankrupt firm must soon decide to accept as little as two cents on the dollar offered under the company’s debt cutting plan, or demand more, in part by backing a lawsuit against the company and its most important stakeholder, Franklin Resources Inc.

The noteholders have until Dec. 7 to vote on a bankruptcy-exit plan that would hand at least 88% of the fracking company to Franklin and its allies, who sit near the front of the line for repayment in Chesapeake’s $9 billion stack of debt. A committee of unsecured creditors, ...