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Linn Energy, LLC Message Board

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  • rlp2451 rlp2451 Oct 26, 2012 10:11 AM Flag

    LINE/LNCO Relationship

    (Observation: MLV Cut LINE from Buy to Hold yesterday after the confrence call. Following is a Q&A betweem the MLV analyst and Clay Jeansonne and Mark Ellis):

    Thank you. Your next question is from Michael Peterson of MLV & Company. Your line is open. Hi Mr. Peterson, check your mute button.

    Michael Peterson - MLV & Company
    Yeah. Good morning gentlemen, sorry about that. My question this morning regard to the market reception of LinnCo. Thus far average daily volume is approximated 1 million shares per day and I mean my view the liquidity looks to be positive. I would be interested in your thoughts or expectations; anything you’re willing to share with regard to the initial read on the market as well as right now the pricing discount of LinnCo relative to LINN is approximating 6%. If you can speak to what’s your expectations where and how you think about that, that would be helpful.

    Mark Ellis - Chairman, President & CEO
    Yeah, sure. In terms of your first comment, liquidity does look to be very good and I think that is the result of being an institutionally focused security which is what we wanted, but it’s – we priced a very large offering and we [indiscernible] [00:02:04] LINE 10 really well. I mean we feel like the underwriter is taking the over allotment option and the first day is – testimony to that is very well received with a very strong book. And I think a lot of people will tell you they have a strong book, but if they take the shield in the first day that I think is really the testimony that the strength of the after market support of the security.

    With respect to the discount, it’s kind of hard to answer because part of the discount is being driven by the fact that LINN is straightening up. So it’s kind of a strange question which is – is it a discount or is it the existence of LinnCo pushing the value of LINN even higher, because it gives us greater access to capital and opens up a lot of different avenues for growth force. And this is a new security, so this is my opinion and I think that you will see that discount narrow, because it’s still a very, very attractive yield and a much larger market that has much lower yields in it. So it’s LinnCo I think gains even more acceptance in the broader market. I think you’ll see that this count narrow, but again I don’t have anything to point you to validate that I think.

    Michael Peterson - MLV & Company
    Sure. Now that’s helpful Clay, I appreciate that. Partly where I was headed with the question and it’s not necessarily answerable but that’s where I was interested in your expectations. As you think about future transactions and you look to the equity markets and you think about these two entities, is the discount worse to sustain itself in the 5% range. Would you then think about these two financing vehicles differently because of that cost differential?

    Clay Jeansonne

    I think you’d have to consider it. Yes, I think if you were trying to raise the smaller amount of equity and Linn with still out of premium which again I don’t think will persist, but just use your assumption let’s just say that it is. I think you would finance their first if there was a smaller transaction, but one of the nice things about LinnCo is that the retail markets MLPs has a limit to it in terms of how much you can raise in one shot.

    So as you start to get into a larger deal, you’d obviously look at using them both, but at that point in time you’re talking about capturing something that you otherwise would be able to capture if you didn’t have LinnCo in existence. So I think on the margin we’ll obviously try to issue the securities that gives us the lowest cost to capital, but at the end of the day the big story line is much greater access as a whole.

    Michael Peterson - MLV & Company
    Great, helpful. Thanks and congratulations on a good quarter.

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