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Linn Energy: Moving Past The Exchange Offer

Summary

Linn's exchange offer expired on April 25th. There was a surprisingly low level of participation as of April 15th.

With the exchange offer completed, there is a high chance of restructuring news soon, or at least an update on the progress of negotiations.

Increased oil and gas prices are likely too little and too late to make a difference for Linn.

The increase in oil and gas future prices since late February is only one-third of the increase needed for Linn to reach breakeven without hedges.

Linn's unhedged breakeven is around $70 oil and $3.50 natural gas or $65 oil and $4 natural gas.

Although natural gas prices and oil prices have increased substantially over the past couple months, the rate and size of the improvement doesn't appear to be enough to offer Linn Energy (NASDAQ:LINE)(NASDAQ:LNCO) a lifeline. The company appears to be well on its way to restructuring, with the exchange offer now out of the way. If Linn wants to maintain production, it wouldn't reach breakeven without hedges until $65 oil and $4 natural gas or $70 oil and $3.50 natural gas. Forward strip prices remain well below those levels.

Restructuring To Potentially Start Soon

Linn Energy extended the deadline for its exchange offer to midnight, New York City time on April 25. This appears to be the only extension as there has been no additional notice about another extension. Linn's ability to further extend the deadline is probably limited by needing to limit the exchange to April. If the exchange extended into May, that would potentially prevent Linn from going forward with restructuring, as any debt reduction that is consummated in May would result in cancellation of debt income [CODI] being passed on to anyone who still held units at the beginning of May.

Surprisingly Low Participation Rates

An interesting thing is that the participation rate for the exchange offer has been quite low so far. As of April 15, approximately 55.5 million Linn units had been tendered, which represents approximately 24.5% of the units not owned by LinnCo. Given the potential adverse consequences of holding Linn's units during a...


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