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Linn Energy, LLC (LINE) Message Board

  • ruby.thedyke ruby.thedyke Sep 23, 2013 10:42 PM Flag

    Jan 16 options available

    It looks like you could have the $32 for two bucks. Okay, it doesn't pay a monthly distribution, I know, but where will this be by 2016, just assuming a "normal" valuation and inflation? Particularly, the time value of the call by early 2015 could be substantial. It's not out of bounds that it could be a ten banger. Just saying.

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    • ruby - I started to write a long-winded analysis of the '16 32 call and where LINE might be priced in 2+ years given the Permian acquisition, Berry merger, the potential distribution level in Jan '16, restored market confidence, interest rate on the 10-year treasury, and possible market interest rate spread between treasuries and LINE in 2 years. Suffice it to say that these are all important elements in assessing the attractiveness of the Jan '16 32. With all the current ruckus, there's now an 800 basis point spread between the 10-year and LINE's yield. In two years, the 10-year could easily be at 5% and the spread may shrink to 500-600 BP (???). One can plug in assumptions about the future distribution, 10-year rates, and 10-year - LINE rate spread and estimate a Jan 16 price for LINE. Looking at it this way, the Jan '16 32 now at about $2.50 +/- does not appear to be a snap. The 10-year note and the spread are critical factors in the assessment.

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