Looking at Linn's last quarter balance sheet, its oil and gas properties are valued at $7.5B as of 31 Dec 2015. This is down 25% from the 30 Sep 2015 balance sheet valuation. Is this property asset valued at the last day of the quarter, or does Linn use an average value during the reporting quarter?
This last quarter was the first one where stockholder equity turned negative.
Oil prices are currently 38% higher today than 31 Dec 2015, making Linn's oil and gas properties worth $10.35B (if the reported value was as of 31 Dec). How does that affect the bank's loan/asset coverage ratios? If this number is accurate, Linn stockholder equity has now turned positive, which makes BK a little dicey for mgmt. when stockholders could claim they had value taken from them based on the intrinsic value of the assets of the company vs debt.
This is OLD NEWS! Article posted in Houston Business Journal (available on Yahoo Financial News) on March 15 (30 days ago) states:
"In its earnings report, Linn also noted other circumstances could cause the company to be in default of debt agreements. As of the March 15 report, the company is in default of its credit facility because it had to include a paragraph regarding doubts about the company’s ability to continue as a going concern. It has a 30-day grace period to obtain a waiver or similar relief."
The only NEW NEWS is that Linn paid interest due on the preceding debt during its 30-day grace period, which is GOOD NEWS.
The last paragraph you quoted from Reuters is 30 day old news. The stock is going up because Linn made its interest payments that were deferred 30 days ago and is now in negotiations with other creditors, opting to delay those payments as it did a month ago. This is not the doom and gloom you make it appear.
Read the transcript of the last earnings conference call. Last quarter was an anomaly based on timing of closed business and mgmt. holding cash to wait for better investment opportunity.
Its all about their debt. There are restrictions and ratios that need to be maintained and since the crash in oil prices, their assets are being valued at less than their debt. LINE must also cover interest payments (which they currently are), but the certainty of doing so in the future may be in doubt. So if LINE is in default on its borrowing terms, lenders can call their notes forcing LINE into BK.
Many times when companies get in trouble like this, the lenders will work with management, but usually the process involves wiping out current shareholders and lenders taking equity in exchange for reducing or canceling debt.
At first I thought this swap was good news for LINE/LNCO holders and that these two stocks would rise today. But this action simply sets the stage for negotiations by LINE mgmt. with debt holders on the future of LINE. If debt or restrictions on debt cannot be renegotiated, LINE has no alternative but to reorganize through BK and this move allows all LINE unit holders a way to avoid a huge tax liability for CODI when their units are wiped out. LNCO shareholders are shielded from this tax liability.
But another problem occurs if debt is purchased at a discount by LINE outside BK. LNCO owns a sizable number of units of LINE and it is still liable for CODI tax. It would need a huge distribution from LINE to pay this tax unless there was some way to offset this income.
Not sure why anyone holding LINE units would not exercise the swap. If mgmt. were able to negotiate a restructured debt outside BK that preserves LINE/LNCO holders, then there is value in holding these shares. This probably will involve a large dilution of shares (reverse split and probably swapping debt for equity). Stock action today reflects this risk which is leaning toward BK.
Any other thoughts?
LNCO shareholders would be shielded from any LINE CODI in BK. LINE unit holders, however, would not be. At first I thought this announcement was a good sign, but the more I study it, looks like BK is right around the corner and this move simply shields LINE holders (who exercise the exchange) from the tax liability.
Sounds like someone here is short LNCO and is getting frightened by the recent runups.
From CC, several things stood out. One sale was delayed from 4th Qtr to this Qtr which probably reduced profit significantly because expenses associated with deal were incurred last Qtr while profit was delayed until 1st Qtr. I wish the Chmn had quantified this. Second, CO is hoarding cash to wait for better economic conditions for investing. Chmn felt the excess cash on hand is better suited for new leveraged investments rather than stock buybacks which can be viewed as a bullish sentiment. How long the company waits to deploy this cash will determine when profit will return to a more realistic value.
Market is reacting to the obvious. Posting a 1c profit means dividend cut and this stock is an instrument purchased by investors for income. Should be a huge selloff by investors who will now look elsewhere for dividends. Conference call will either convince investors this is a one-off event or that this "no profit" situation will continue.
I'm a large stakeholder in LINN and its easy to read between the lines. Perhaps mgmt. is trying to negotiate with its creditors (note holder, suppliers, etc.), but the writing is clearly on the wall. Insiders own 37% of this stock and it will be interesting if BK is pursued what these insiders end up in the reorganized company.
tongap, you are correct. The prospectus clearly states "Indicative Value" declines 60% or hits $5.00 to be . Any panic selling would just drive down the PPS, not its IV. According to my calculation, if MORL IV hits $5.31, then it will be liquidated (60% of $13.28, its closing value last month.
Has nothing to do with buyers or sellers of MORL. Has everything to do with buyers and sellers of mREITs contained in the index and right now there is a negative environment for these stocks because of risk of higher short term rates which will narrow the spread and reduce the book value of these stocks.
If you look back historically, you will see LINE and LNCO prices diverge in BOTH directions. In fact, I've seen LNCO almost $2 a share more than LINE with no real explanation. Just run a historical plot of these two stocks and you will see what I mean. I've traded these two stocks against each other and never lost money, selling the higher priced one and buying the lower priced one on the same day. Simply be patient and the stock prices will converge.
Not sure why this would occur with suspension of dividend which eliminates the different tax treatments. Right now, spread is over 10%. Looks like an arbitrage opportunity.