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Linn Energy Reaches Settlement That Likely Includes Bankruptcy Filing
1:39 pm ET April 6, 2016 (Dow Jones) Print

By Stephanie Gleason

Linn Energy LLC (LINE) has reached a settlement with bondholders that likely will result in the oil and gas producer seeking bankruptcy protection to complete its restructuring during the next three months.

The company said Tuesday that it had reached an agreement with a majority of a group of bondholders, curing a default under those bonds. Under the agreement, the bondholders and Linn have agreed to resume negotiations on the terms of a debt-restructuring plan, likely to be executed through a chapter 11 bankruptcy filing.

Under the agreement, if no deal is reached before Linn files for bankruptcy, the bondholders have agreed to support Linn's request for bankruptcy-court approval of a plan that includes replacing their bonds with $1 billion in new bonds and releases certain collateral securing the current bonds.

This agreement with bondholders expires in 91 days unless Linn files for bankruptcy in that time.

These bondholders hold $1 billion worth of secured, second-lien notes that mature in 2020 and have a 12% interest rate. This group in November agreed to tender various amounts of other bonds, maturing between 2019 and 2021 and totaling $2 billion, for this new debt. On Feb. 18, Linn declined to deliver certain collateral, entering a 45-day grace period with bondholders. The company defaulted at the end of that grace period, and this settlement cures the default that could have resulted from this decision.

The company has said previously that a bankruptcy filing appears to be "unavoidable" and had hired financial and legal advisers.

Linn Energy is taxed as a master limited partnership, or MLP, rather than a corporation, a popular arrangement among energy companies when oil prices were soaring. But that structure could trigger a tax hit for investors when the company restructures.

Linn's MLP status allowed income to flow straight through to investors without the Internal Revenue Service taking a cut at the corporate level, allowing Linn to distribute billions of dollars of cash to investors. But now, investors with potentially worthless shares--or units, as they are known--may owe taxes on debt that is forgiven in a bankruptcy.

As distress has spread through the oil and gas industry, which has been crippled by persistently low prices, many are watching Linn's attempt to restructure and resolve issues related to this MLP structure.

Late last month, LinnCo LLC (LNCO)--a separate publicly traded company created to "enhance Linn Energy's ability to raise additional equity capital"--launched an exchange offer that allows the holders of Linn Energy units to swap the units for one share of LinnCo. The company said that the offer was designed to "permit holders of LINN units to maintain their economic interest in LINN through LinnCo, an entity that is taxed as a corporation rather than a partnership, which may allow LINN unitholders to avoid future allocations of taxable income and loss, including cancellation of debt income, that could result from future debt restructurings or other strategic transactions by LINN."

The Houston-based company focuses its exploration and production efforts throughout the U.S.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

Write to Stephanie Gleason at [e-mail]

(END) Dow Jones Newswires

April 06, 2016 13:39 ET (17:39 GMT)