Going Concern Audit Reports
Based on current estimates and expectations for commodity prices in 2016, LINN does not expect to remain in compliance with all of the restrictive covenants contained in its credit facilities throughout 2016 unless those requirements are waived or amended. As a result, indebtedness under the credit facilities could, after the expiration of any grace period and at the election of a majority of the lenders under the credit facilities, be accelerated and become immediately due and payable. The uncertainty associated with LINN’s ability to meet its obligations as they become due raises substantial doubt about the Company’s ability to continue as a going concern. The report of LINN’s independent registered public accounting firm that accompanies its audited consolidated financial statements in LINN’s Annual Report on Form 10-K contains an explanatory paragraph regarding the substantial doubt about the Company’s ability to continue as a going concern
As of December 31, 2015, LinnCo had income taxes payable of approximately $30 million and cash of approximately $11 million. Its only significant asset is its interest in LINN and its cash flow, which was historically used to pay dividends to LinnCo shareholders, is completely dependent upon the ability of LINN to make distributions to its unitholders. In October 2015, LINN suspended the payment of its distribution. The uncertainty associated with LinnCo’s ability to meet its obligations as they become due raises substantial doubt about its ability to continue as a going concern. The report of LinnCo’s independent registered public accounting firm that accompanies its audited financial statements in LinnCo’s Annual Report on Form 10-K contains an explanatory paragraph regarding the substantial doubt about LinnCo’s ability to continue as a going concern.
Strategic Alternatives Related to the Company’s Capital Structure
LINN’s Board of Directors and management are in the process of evaluating strategic alternatives to help strengthen its balance sheet and maximize the value of the Company. As part of this process, LINN has elected to exercise its 30-day grace period with respect to interest payments due March 15, 2016 of approximately $30 million on its 7.75% senior notes due February 2021, approximately $12 million on its 6.50% senior notes due September 2021 and approximately $18 million on the Berry Petroleum Company, LLC (“Berry”) senior notes due September 2022. If LINN fails to make the interest payments within the 30-day grace period and is otherwise unable to obtain a waiver or other suitable relief from the holders under the indentures governing the senior notes prior to the expiration of the 30-day grace period, the default under the indentures will mature into an event of default, allowing the noteholders to accelerate the outstanding indebtedness under the senior notes.
“We are continuing to work with our advisors to review a full range of strategic alternatives to reduce the Company’s overall debt,” said Mr. Ellis. “In addition, we have been in discussions with certain lenders in an effort to reach a mutually agreeable resolution and remain focused on right sizing the balance sheet in order to position the Company for long-term success.”
LINN does not intend to make any future announcements concerning this process unless and until the Company otherwise determines that disclosures are necessary or appropriate. As previously announced, LINN has retained Lazard as its financial advisor and Kirkland & Ellis LLP as its legal advisor to assist the Board of Directors and management team with the strategic review process.
Tuesday, March 15, 2016
Going Concern Audit Reports