Myart, why would any sane company buy (at a premium no less) an outfit with almost a 2.5 to 1 debt to equity ratio? The acquiring firm could sell off all of Linn's assets and still be saddled with several billion dollars of Linn debt. I think that you're unaware of the debt to equity implications.
Figuring that the underwriters received a 5% discount from the 11.79 offering price, that'd bring their cost at 11.20. I doubt that they're besieged by buyers at the offering price. So I suspect that to preserve capital and at least turn a small profit, some of these guys are selling (or selling short pending the May 22 settlement) into the market, taking advantage of that 5% safety net. Such selling would act as a price lid for a while. Maybe another week or two? Anyway, when it lets up (if I'm right), I'd expect a decent technical pop for LINE, possibly even to the offering price, which factored in the dilution percentage from the pre-offer close of 12.41. Does this mean that LINE is an encouraging short-term trade at this point? And that the June strike 11 options are a buy now? We'll see.
The dilution is just a bit under 5%. Not really much, I agree, but at the last CC Ellis said it wasn't going to happen. Other worries are the huge debt, the failure to cover the dist. in Q1, and the expected failure to cover the dist. in Q2. Ellis says they'll make it up in the last half, but that's probably whistling past the graveyard. The debt is still over $10 billion, and to service it the company can't continue to borrow money. Unless there's some oil-price magic in Q3, the current dist. will never hold on.
Shorts, you certainly can't count the middlemen underwriters. So who's buying at 11.79 while the market is in the 11.30s? If I bought in the pre-market at 11.35 today and sold it to you at 11.79, would you then be aligned with the smart money? The putative smart money has been touting Linn since the low 40s. I doubt that they're buying second yachts as a result.
"The reason this move caught investors off guard was due to the fact that just last month LINN's CEO Mark Ellis said that, "swapping debt-for-equity is not something we're looking [to do] at this point". That comment came after an analyst on the company's first-quarter conference call asked if the company was thinking about de-levering. While what LINN is doing is not a straight debt-for-equity swap like we've seen recently from Halcon Resources and SandRidge Energy, as they issued shares directly to an existing bondholder in exchange for debt. LINN is effectively doing the same thing, as it is swapping its equity to extinguish debt.
"What has investors concerned is the fact that Ellis said that LINN was comfortable with its liquidity saying that, 'we're really not in the position where liquidity is a big issue for us. Instead, he said that the company would only consider de-levering by issuing equity to make an acquisition."
I sold out LNCO in the 23s and lost a bunch of money after what looked like a half dozen "buying opportunities." Turned out they were selling opportunities. Fantasies and hope, however deeply felt, just don't do the trick. The risk/reward ratio of LINE/LNCO has gotten very scary and speculators should be aware of that. Linn's debt to equity ratio is over 2 to 1. That's terrible. And the cash flow isn't covering the distribution. Worth considering at the very least.
You do know, Planters, that LNCO could drop to 3 and you'd still receive umpteen red thumbs. The nature of stock boards is like the guy who fell from a skyscraper observation deck and, on the plummet down, called into office windows, "All right so far!" The purpose of stock discussion boards is only marginally informational. Mainly they exist for relatively naïve speculators to convince each other that they haven't made a mistake.
"HOUSTON, May 19, 2015 (GLOBE NEWSWIRE) -- LINN Energy, LLC (Nasdaq:LINE) announced today the pricing of its public offering of 16,000,000 of its units representing limited liability company interests at a price to the public of $11.79 per unit."
Pretty optimistic in light of the current trading. Would large institutional buyers pay about a half a buck more than the market price at this moment? Will the underwriters get stuck while waiting for a price rise? Will their fees compensate? Or is Linn a nice bargain at the current price? (The dilution, after all, isn't *that* much, but the debt reduction isn't much either.)
8 million units traded after only 45 minutes. Considering the unknown of the new units' pricing plus the minimal reduction of debt plus increased dilution, it's not possible to rationally determine a fair market price. So I think we're seeing a lot of outright gambling taking place.
Treacherous territory. Feeling too good about the puts I closed out on Friday I bought 5K at 11.45 in the pre-market, blinked 3 or 4 times and sold at 11.42, as I'd been hoping for a quick rise of 10 - 15 cents. I think I'll lay off until the underwriters reveal the price they can get for all those new units in a highly speculative vehicle. It'll probably be lower than most posters here think.
I was rushing (my bad), Vette, and meant tad *less* than 5%. Also I meant that 11.80 wouldn't hold. The current pre-market price in the 11.40s seems more reasonable, although it could slip lower.
I think the risk with Linn, Tomedca, is not their going belly-up but their cutting or canceling the distribution because of the large debt encumbrance. The PPS, in that event, would drop accordingly as would the income of course.
The AH unit price vis-a-vis its closing price approximates the amount of dilution (a tad more than 5%) caused by the public offering of 16 mil new units at a price that's not yet been revealed. Will Linn need an offering price that's lower than the current AH price to lure buyers? It seems unlikely to me that the price will be higher. My guess is around 11.50 to 11.70. Should be interesting, as a lower price than the current 11.80 or so won't hold if my guess is right, and that makes me wary of buying for a trade.
From Wayne Duggan at benzinga:
"Analysts believe that many midstream MLP names currently offer attractive valuations. Goldman sees continuing strong U.S. crude oil production growth of up to 700kbpd annually, and sees this production driving 'liquids-levered midstream infrastructure demand.' Goldman likes gas/NGL midstream names with Permian/Bakken/Eagle Ford exposure. They recommend buying Enbridge Inc (NYSE: ENB), Enterprise Products Partners L.P. (NYSE: EPD), Energy Transfer Equity LP (NYSE: ETE), Plains All American Pipeline, L.P. (NYSE: PAA), Sunoco Logistics Partners L.P. (NYSE: SXL) and Western Refining Logistics LP (NYSE: WNRL).
"In addition, Goldman likes companies with Marcellus and Utica exposure, including Kinder Morgan Inc (NYSE: KMI), Rice Midstream Partners LP (NYSE: RMP) and Williams Companies Inc (NYSE: WMB)."
A thoughtful reply, Goskiing. And while you're at it, perhaps you can kill off everyone who disagrees with you. Not quite the American way, of course, but trivialities shouldn't hold you back.
Also, Marion, it doesn't take a lot to crank up older wells that have been shut down because of low oil prices. So here's oil popping nicely over 60 today and LINE/LNCO moving up some but not as smartly as I'd have guessed. If I were a longer-term holder instead of the day trader I am these days, I'd be worried about anticipatory selling. I think that the argument against crude being above $70 in the next couple of years is stronger than the position for it. And you've stated what that means.