I'm not convinced there should even be a distribution increase this year considering Linn's leveraged finances. Still, I think there may well be one in April. But January? Sugar-plum fantasy. Meanwhile, LINE is certainly continuing its bullish momentum, and I think there's more to come in the days ahead. Unless there's an irresistible pop, I'll probably sell my options just before ex-div.
You hit the nail on the head. Linn's debt to ebitda ratio is too high, even by their own admission. I feel certain they will address it via acquisitions that will simply be financed with far more equity than debt to help get the balance sheet back in order.
As I said previously, it will likely take $1 billion to $1.5 billion in equity issuance to get the ebitda up to get the ratio back closer to 3.0x...but we will also see how the organic growth (Hogshooter) contributes and also how much harm the NGL prices do, given their lack of direct hedges on ethane and propane.
As an aside -
When I spoke to Linn last week, and while discussing potential acquistions, I mentioned one that could be purchased for about $2B. The response was: "$2 billion? We could do that easily."
"You hit the nail on the head. Linn's debt to ebitda ratio is too high, even by their own admission. I feel certain they will address it via acquisitions that will simply be financed with far more equity than debt to help get the balance sheet back in order."
With equity seemed to be priced at 12% to 14% return; which is why price targets are $45, and 7.5%+ cash distribution that is very expensive compared to the 6.25% bond selling at a premium YTM of 6.04%. So Mr. Market sure is not buying your delusions. ;-)
Mr. Market clearly is not worried about the debt expense coverage ratio which is what you were trying to express but mixed up two concepts.
Remember you do it to yourself. No one else is responsible for your foolishness.
Besides if management guidance turns out correct the 3 times coverage of debt service expense will meet their target. This is what they were speaking about.