Beleaguered Linn Energy (LINE) unitholders have one more week to decide if they want to become shareholders of equally troubled LinnCo (LNCO).
The Houston-based companies announced an offering last month in which Linn Energy unitholders (as they are called under a master limited partnership structure) would be able to exchange their units for shares of LinnCo stock. The purpose of the transaction was to help Linn Energy unitholders avoid cancellation of debt income in the event that the companies were forced to restructure their debts. Also, unitholders would still be able to be invested in the Linn family of companies -- should they want to be.
Shares of Linn Energy and LinnCo both trade for less than $0.50.
While the offering may help unitholders avoid cancellation of debt income, Linn Energy has cautioned that investors consult with their own tax advisor before proceeding. Participation in the exchange would be a taxable event, which could create tax liabilities for participants. As an example, when Kinder Morgan (KMI) switched from an MLP structure to a corporate structure, investors were hit with a tax bill from the exchange. (To be sure, there are several circumstantial differences between Kinder Morgan and Linn Energy and LinnCo -- namely, the financial health of the former was stronger at the time of the exchange.)
The offering was initially supposed to expire Monday but was extended to Apr. 25, 2016. As of Friday, 55.5 million Linn Energy units were tendered in the exchange. The exchange offering extension was just one of several updates Linn Energy and LinnCo provided in the last few days.
As the company explores "strategic alternatives" with its financial and legal advisors, it has been exercising the 30-day grace period to make interest payments on several of its notes. Last week it made interest payments totaling $60 million on its notes and it is deferring $58 million in interest payments coming due between Apr. 15 and May 1.
Linn Energy and Berry Petroleum, a wholly owned subsidiary of Linn Energy, announced recently obtained waivers on their respective credit facilities. The waivers state that certain events -- such as the failure to make interest payments or cross-defaults -- would not constitute an event of default under the credit facilities until May 11.
Recent announcements give Linn and LinnCo more time but little relief.