If they behave responsibly (one can only hope), they cut the dist. at least in half and pay down debt. The debt to equity ratio is roughly 2.5. That's way too high and one of the reasons the PPS is cratering.
Great to have a psychic on board. Thanks for your read of the future. I understand that Madame LaZonga of worldwide crystal-ball fame agrees with you.
What specific hedge funds, Keith? The U.S. has more than 4,000 of them. Were they all polled? They're pretty secretive, you know.
Capital gains can be written off against capital losses. However, only $3K of capital losses max can be written off when losses (which can be carried forward) exceed gains. (Eg., Gain of $14K and loss of $21K provides for no tax on the gain, a tax writeoff of $3K and a carryover of $4K.)
Crus, you wrote, "I just looked at fidelity's closing values for Friday...they had your bond closing price @ 84.5 and ask @86.423." For accurate bond info. you need to go to FINRA's home page. There, when you access Linn Energy, you can click on the approrpiate Linn bond and then on "Trading History" for all of a given day's actual trades along with volume (which was really active on Friday). The closing trade was at 90.5 (rounding off).
John, I think the current 17% fantasy distribution is testament to the market's underscoring already. Only the most unsophisticated investors can fail to grasp Linn's several-year tottering instability. And I'm embarrassed to confess that even as I perceived it I held on to foolish hopes until I bailed after the last earnings report.
Well said,RRB! An intriguing idea. (And the company is not the only entity paying the price for that futile effort.) For all of Ellis' glibness, he's been a third-rate CEO. A pity that Mike Linn retired.
Re the dist. you may have the scenario backwards. A dist. cut, if large enough, increases cash flow significantly. That improves Linn's balance sheet and provides more security to bond holders. So the bond price could well rise, because the ability of a company to pay interest on debt is of primary imposrtance to bonds. In fact, those who own only bonds in Linn would be happy to see all the distribution money accrue to the balance sheet regardless of the impact on unit price, all other things being as is..
You need to move the decimal point one space to the right for the price of one bond. It's just a market space-saver.Also, the yield factors in the capital gain at maturity.
A distribution cut is inevitable sometime in the next several months. We're in a low interest-rate environment and here's a company paying an outlandish 17%. Please! And consider that getting on stronger financial footing could well make Linn's PPS rise after the initial impact of the cut is absorbed by sellers who misguidedly think the good news is bad news.
Trojan, I've been thinking about the Linn bond I mentioned, and I've decided it's not a bad deal. It's callable at about 104 (unlikely to happen) and can probably be bought at under 90. It's a senior bond and is rated B1 by Moody's. Junk bond but not the worst level. Before the bond can be in trouble there'd have to be no distribution at all on the units, so there's a nice cushion. Basically I think it's safer than the rating implies. I don't see Linn going bankrupt as it has lots of producing assets that balance out a debt that's much too high. Also, a large distribution cut is inevitable.
Went to FINRA, which has really complete bond info. (Wish Yahoo would allow a link. I could send it to an e-mail.) S&P rates the bonds, which have been tanking, at a pretty low B. For instance, the 8.625% of 2020 traded today at 89.12 for a yield of 11.39%.For some context, most high-yield bond funds are trading at around 6%. That's an interesting indication of risk.
While I'm not short, Phone, I think that a dreadful Q4 report (even though anticipated via Linn's guidance) could still cause LINE to crater and make Mac 30% from today's price (and he likely sold short at a higher level). He's betting that the market hasn't yet discounted a large dist. cut on top of bad news to boot. Just look at the posts of people who can't accept that possibility. Those are tomorrow's potential sellers. Also, it's not like we're dealing with a well-managed company.
You're right, B. It doesn't add up, so something is awry. Moreover, with all the deals and the pinball bouncing of strategies the past couple of years, I wonder if they actually know what it is they've gotten into. OR, maybe they do and are too embarrassed to say until they absolutely have to.
You found me out, Bear. I regularly wring my hands over my own worthlessness. Oh yes. And fear. I so regret bailing out of LNCO in the 23s. What was I thinking?! If only I had your courage when I was in the military umpteen years ago. But, you see, you're fearless and I'm not.
Boy, Mac, are you ever going to be popular on this board!
The Saudis are sitting on so much cash that they can easily play hardball for quite awhile. And while I think there's a good shot at your being right, I lack the nerve to be short. So I'm settling for being safe.