Linn refinancing?

[k1f]

Dan, Based on experience, any estimate of how likely Linn is to find refinancing (cf OKS) that could
avoid the collapse outlined in the last reply to that post ("Linn Groaning")? From that account it
seems as if financial ruin could be part of a disastrous chain reaction.

[dan_s]

Linn's publicly traded debt is trading at less than 20 cents on the dollar. They may use Chapter 11 (or just the threat of it) to get debt holders to restructure. There are VCs sitting on the sidelines with $billion waiting to help them do just that. Because Linn has so much of their production hedged (100% of natural gas through 2017 and 70% of oil through 2016) they are still generating positive cash flow from operations. As long as they can pay the vendors and interest on their debt, they should be able to avoid bankruptcy. However, beyond 2016 they are in big trouble unless oil prices rebound. Obviously, the bankers and debt holders see this coming. Cash is King, so now is the time to restructure for Linn.

I see many analysts making broad statements about the MLPs. They are each unique companies. Using a broad brush to paint an entire sub-sector is unwise. For example, MEMP and VNR are in much better shape than LINE. See the hedge tables at the bottom of the MEMP and VNR forecast models. MEMP is more heavily weighted to natural gas and they have good hedges in place through 2019. 95% of their 2016 gas is hedged at $4.15/mcf.

That said, the upstream MLP model does not work in periods of declining commodity prices. They grow through acquisitions and they can't make them when they are cut off from the capital markets. They must be able to hedge a high percentage of each year's production to lock in cash flows.