• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

Linn Energy Investors May Face Double Punch as Company Explores Options

The Texas-based company said that filing for Chapter 11 protection "may be unavoidable" and tax consequences could hurt investors.
By CARLETON ENGLISH Mar 15, 2016 | 04:45 PM EDT
Stocks quotes in this article: LINE

In June 2013, Linn Energy (LINE) CEO Mark Ellis purchased 10,000 shares of the company on the open market, when the stock was trading for $30. Three years later, the Texas-based oil and gas company said via a regulatory filing that filing for Chapter 11 protection "may be unavoidable" and there could be tax consequences for its investors.

What went wrong?

In December 2013, Linn Energy acquired Berry Petroleum for $4.3 billion, through a mix of cash, equity, and the assumption of Berry Petroleum's debt. The deal was announced in February 2013 and Ellis purchased shares soon thereafter. It was a purchase Jim Cramer characterized as "ill-advised" as Linn Energy lacked the cash flows to justify the acquisition.

Tuesday, the company released its fourth-quarter earnings and 2016 guidance, and the shares plummeted more than 30% to close at $0.65. If Linn's closing price stays below $1 for 30 consecutive days, it will receive a delisting notice from Nasdaq and will have 180 days to correct itself.

Before the market open, Linn reported a net loss of $2.5 billion in the fourth quarter, which amounts to $7.05 per unit (Linn is organized as a master limited partnership, its shareholders are known as unitholders). The company also recorded a non-cash impairment of $3 billion for the quarter and $5.8 billion for the year due to lower commodity prices and a change in the company's estimates in proved reserves.

Perhaps more telling than the losses was a disclosure in the company's audited financial statements about its ability to continue as a going concern. The inclusion of going-concern qualification means that Linn is currently in default under its Linn credit facility. Also not helping matters, the company also elected to defer making interest payments totaling $60 million on several of its notes. 

The Deal: Linn Energy Warns That Bankruptcy May Be 'Unavoidable' 

Unless Linn is able to obtain a waiver or other relief from its lenders within 30 days, payments on the company's outstanding debt could be accelerated. If that were to occur, then Linn would be in default under its senior and second lien notes, similarly triggering an immediate demand for payment.

And, because financial misery loves company, a default in the second lien notes would trigger a default under the Berry credit facility. 

If accelerated debt payments and fears of filing for Chapter 11 protection weren't worrying enough for investors, Linn also stated that its unitholders could face adverse tax consequences if its actions to shore up the balance sheet result in cancellation of debt income.

"We urge our unitholders to consult their tax advisors regarding the potential adverse effects of the various strategic alternatives that may be available to us," the company said in the filing.

After Tuesday's announcements, unitholders may also want to consult their doctor.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Employees of TheStreet are restricted from owning individual securities.

TAGS: Investing | U.S. Equity | Energy

More from Energy

Retirees: Get Plugged Into This Dividend Stock

Bob Ciura
Apr 7, 2021 12:27 PM EDT

Evergy is a high yield utility stock offering dependable dividends.

With Gasoline Back to $3 at the Pump Let's Check Out the XLE

Bruce Kamich
Apr 2, 2021 12:00 PM EDT

Let's review the charts and indicators.

First Solar Is High on My List for Breakout Candidates Over the Next Week

Timothy Collins
Mar 24, 2021 3:35 PM EDT

Also, new issue DigitalOcean is one of the few flyers I'm willing to take here today.

Oil - It's All About Seasonality

Maleeha Bengali
Mar 23, 2021 11:39 AM EDT

There is no shortage of oil, there never was.

Oil and Exxon Mobil Are in My Technical Crosshairs

Carolyn Boroden
Mar 22, 2021 8:30 AM EDT

Following both for potential buy setups.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 04:44 PM EDT PAUL PRICE

    Pretty Incredible + Hard to Believe

  • 11:18 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 5 Pillars of Exceptional Trading
  • 08:05 AM EDT BOB LANG

    Bitcoin vs. Gold: Which Should You Invest In Now?

    Read my article TheStreet here!
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login