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Linn Energy Bankruptcy: Salvation For Equity Holders?

Summary

Equity holders will get wiped out according to the current plan.

First Lien gets full recovery.

Second lien and unsecured notes will get wiped out, save equity interest in the new company.

There were some disagreements among different classes of creditors.

Current shareholders can still get a chance if other creditors put up a fight.

Linn Energy (NASDAQ: LINE) (NASDAQ: LNCO) just filed for bankruptcy, something that I predicted quite a while ago (There Is No Saving Linn Energy). As I mentioned in my last article, the company will be defaulting on May 11th unless amendments are made. It would appear that there could be no amicable agreements, and so it is not a coincidence that Linn Energy filed today, despite the fact that oil has continued to rally (WTI +3%).

Equity

What will happen to equity holders? You can probably guess given what has occurred over the past couple of months. According to the proposed plan, all shares will be cancelled. What's worse is that even in the counterproposal filed by senior unsecured creditors, there is no mention of any residual equity interest. And so it would appear that the fate of current shareholders is sealed.

First Lien (Credit Facility)

After the hedge book is liquidated, proceeds will be used to pay down the difference between the exit facility and the principal, after which the exit facility will be paid down after restructuring is completed. To put it simply, first lien should be looking at full recovery.

Second Lien and Senior Unsecured

Second lien will get wiped out, which came as a surprise to me. They will get debt and equity interest in the new company (plus any mortgages as a part of the April 4th settlement). However, I think this should be of little...


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