LINN Energy (NASDAQ:LINE), an oil and natural gas company headquartered in Houston, Texas, reported its fourth quarter results last week. Among the highlights, Linn reduced total debt, excluding interest payable on second lien notes, by approximately $1.9 billion. Unfortunately, there remains substantial doubt regarding the company’s ability to continue as an ongoing concern. In particular, Linn stated that “Based on current estimates and expectations for commodity prices in 2016, LINN does not expect to remain in compliance with all of the restrictive covenants contained in its credit facilities throughout 2016 unless those requirements are waived or amended. As a result, indebtedness under the credit facilities could, after the expiration of any grace period and at the election of a majority of the lenders under the credit facilities, be accelerated and become immediately due and payable.”
During February, Linn announced that it was going to “explore strategic alternatives to strengthen its balance sheet and maximize the value of the company.” The company stated that it had hired financial advisory firm Lazard and law firm Kirkland & Ellis to complete a strategic review of its options. Linn also stated that it had maxed out its credit facility by borrowing the $919 million remaining under its borrowing base. Shares dropped dramatically as analysts expected bankruptcy to be imminent.
Linn traded at more than $40 a unit in 2012 and more than $30 per unit as recently as September 2014 before oil prices started to sink, according to Fuel Fix. Linn’s most recent 52-week high was $14.21 and on Friday, March 18 Linn closed at $0.57 per unit. When oil prices were high, th Linn borrowed heavily to acquire oil and gas assets. In October 2015, Linn, who has a history of large dividend payments, announced that it would suspend LINN Energy’s distribution and LinnCo’s dividend effective September 30, 2015. In sum, Linn continues to face substantial debt and shrinking asset bases.
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