Linn Energy Bankruptcy Confirmed

BASED ON THE FOREGOING FINDINGS OF FACT AND CONCLUSIONS OF LAW, IT IS THEREFORE ORDERED, ADJUDGED, AND DECREED THAT: This Confirmation Order confirms the LINN Plan and the Berry Plan in their entirety.

New Dates and Deadlines in Linn Energy Bankruptcy

Voting Deadline January 12, 2017 at 4:00 p.m.
Plan Objection Deadline January 17, 2017, at 4:00 p.m.
Confirmation Hearing Date January 24, 2017, at 9:00 a.m.

Linn Energy Files Plan of Reorganization

The proposed hearing dates on the adequacy of the proposed disclosure statement and confirmation for the LINN Debtors’ plans are December 8, 2016 and January 24, 2017, respectively.

The plan calls for LINN equity to be extinguished:

On the Effective Date, existing Interests in LINN and LinnCo shall be deemed canceled, discharged, released, and extinguished, and there shall be no distribution to Holders of Interests in LINN and LinnCo on account of such Interests.

LINE has also had a major squeeze in price.

"Linn Energy Has New Deal With Creditors to Take Over Company"

"Gas driller Linn Energy LLC announced a new deal with bondholders to divide up the company after it reorganizes and exits bankruptcy sometime next year, lawyers told the judge overseeing the case. Unsecured noteholders will own about 60 percent of Linn, with the rest going to second-lien bondholders..."

Dockets for Recent Bankruptcy Cases

• Energy XXI
• Arch Coal
• Peabody Energy
• Goodrich Petroleum
• Linn Energy

LINN Energy Filed For Bankruptcy $LINE

From restructuring term sheet (8-K):

• The Company's 12.00% Senior Secured Second Lien Notes due December 2020 (the "LINN Second Lien Notes") will be allowed as a $2 billion unsecured claim consistent with the settlement agreement, dated April 4, 2016, entered into between the Company and certain holders of the LINN Second Lien Notes.
• Unsecured claims against the LINN Debtors, including under the LINN Second Lien Notes and the Company's unsecured notes, will convert to equity in the reorganized Company or reorganized LinnCo (the "New LINN Common Stock") in to-be-determined allocations.
• The Restructuring Support Agreement contemplates that Berry will separate from the LINN Debtors under the Plan. Claims under the Berry Credit Facility will receive participation in a new Berry exit facility, if any, and a to-be-determined allocation of equity in reorganized Berry (the "New Berry Common Stock").
• Unsecured claims against Berry, including under Berry's unsecured notes, will receive a to-be-determined allocation of New Berry Common Stock up to the full amount of Berry's unencumbered collateral and/or collateral value in excess of amounts outstanding under the Berry Credit Facility.
• Cash payments under the Plan may be funded by rights offerings or other new third party investments. The Restructuring Support Agreement contemplates that Berry may undertake a marketing process for the opportunity to sponsor its Plan.
• All existing equity interests of the Company, LinnCo and Berry will be extinguished without recovery.

LINN Energy Announces Updates $LINE

As previously announced, the Company is currently in the process of exploring strategic alternatives to strengthen its balance sheet and maximize the value of the Company and has engaged its financial and legal advisors along with its lenders in discussions on how to best reduce the Company’s debt and ensure its long-term liquidity needs are met, including the possibility of restructuring under a chapter 11 plan of reorganization.

As part of this process, LINN and Berry intend to elect to exercise the 30-day grace period with respect to an interest payment due April 15, 2016 of approximately $31 million on LINN’s 8.625% senior notes due April 2020 and interest payments due May 1, 2016 of approximately $18.2 million on LINN’s 6.25% senior notes due May 2019 and approximately $8.8 million on Berry’s 6.75% senior notes due November 2020. If LINN fails to make the interest payments within the applicable 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 resulting default under the applicable indenture will mature into an event of default, allowing the noteholders to elect to accelerate the outstanding indebtedness under the senior notes.

On April 12, 2016, LINN entered into the Eighth Amendment to its Sixth Amended and Restated Credit Agreement among LINN, Wells Fargo Bank, NA, as administrative agent (the “Agent”), and the lenders party thereto. The Eighth Amendment provides:

    An agreement that certain specified events will not become defaults or events of default until May 11, 2016;
    The borrowing base will remain constant until May 11, 2016, subject to reductions based on sales of assets or termination of hedge agreements; and
    LINN, the Agent and the lenders will negotiate in good faith an agreement in furtherance of a restructuring of the capital structure of LINN.

In addition, on April 12, 2016 Berry entered into the Twelfth Amendment to its Second Amended and Restated Credit Agreement among Berry, Wells Fargo Bank, NA, as administrative agent (the “Berry Agent”), and the lenders party thereto. The Twelfth Amendment provides:

    An agreement that certain specified events will not become defaults or events of default until May 11, 2016;
    The borrowing base will remain constant until May 11, 2016, subject to reductions based on sales of assets or termination of hedge agreements; and
    Berry will have access to $45 million in cash that is currently restricted in order to fund ordinary course operations; and
    Berry, the Berry Agent and the lenders will negotiate in good faith an agreement in furtherance of a restructuring of the capital structure of Berry.

"LINN Energy Announces Fourth Quarter and Full-Year 2015 Results" $LINE

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.

Linn Energy Unable to File Form 10-K for 2015 $LINE

Right after Peabody filed one, we get a notice from Linn Energy [LINE] that they can't file a Form 10-K yet, either:

The Company 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. Accordingly, the uncertainty associated with the Company’s ability to meet its obligations as they become due raises substantial doubt about its ability to continue as a going concern. The Company’s auditors' opinion to be issued in connection with the consolidated financial statements is expected to include a going concern qualification.

As a result of the anticipated inclusion of the explanatory paragraph regarding substantial doubt about the Company’s ability to continue as a going concern, the Company will not be in compliance with its Sixth Amended and Restated Credit Agreement (as amended, the “LINN Credit Facility”). The LINN Credit Facility provides for a 30-day grace period for a breach of this covenant before an event of default may be deemed to have occurred. As of February 29, 2016, total borrowings (including outstanding letters of credit) under the LINN Credit Facility were $3.6 billion with no remaining availability. Absent a waiver or amendment, if an event of default occurs under the LINN Credit Facility, the lenders could accelerate the loans outstanding under the LINN Credit Facility.

In addition, indebtedness outstanding under one or more of the Company’s long-term debt instruments may be reclassified as current portion of long-term debt. In the event of such reclassification, the Company may have additional covenant breaches under the LINN Credit Facility, which in the absence of a waiver, could give lenders the right to accelerate the indebtedness under the LINN Credit Facility and may result in cross acceleration under certain other debt instruments of LINN Energy, and its wholly owned subsidiary, Berry Petroleum Company, LLC.

The significant additional time required to evaluate the effects of and disclose, in compliance with the requirements of Form 10-K, the concerns regarding the Company’s compliance with the covenants under its debt agreements, potential defaults and events of default thereunder and the going concern qualification has resulted in the Company being unable to file its 2015 Annual Report on Form 10-K for the fiscal year ended December 31, 2015 within the prescribed time period without unreasonable effort or expense.

Distressed Bond Update: $BTU $EXXI $LINE

• EXXI the 3% holdco note traded FLAT at 0.60 today. The other unsecured debt trading around 3 cents. Market does not seem to be expecting them to make the interest payments at the end of the 30 day grace period. Also, they have suspended payment on the preferred and have received a NASDAQ notice of deficiency.
• LINE debt is trading for 5 cents or less, with current yields getting up close to 200%!
• The BTU 4.75% subordinated note traded at 1.6 cents, a current yield of close to 300%! The other unsecured debt (with higher coupons) is trading for around 3 cents.

2016 Begins with Ultra Distressed Energy Companies on the Brink

Judging by the bond prices, many of these are likely to file in 2016:

• ZINC, the July 2017 3.8% note trading at 20 cents; ytm 155%
• GDP, the 8.875% notes traded at 8; current yield >100%.
• EXXI, the 3% notes traded at 6; current yield 50% and ytm 145%
• TC, the 7.375% notes traded at ytm of 134%
• SD, the 8.75% notes traded at 12; ytm >100%
• PVA, the 7.25% notes traded at 13; ytm>100%
• BTU, the 6% notes traded at 18.2; ytm 88%
• CLF, the 5.95% notes traded at 28; ytm 88%
• LINE, the 8.625% notes traded at 16; ytm 78%
• XCO, the 7.5% notes traded at 27; ytm 72%
• SSE, the 6.5% notes traded at 16; ytm 54%

Energy and resources. These companies have a combined market cap of $1.67 billion. In all likelihood based on the bond prices, that is illusory. Maybe in 2016 lots of illusory wealth will be revealed as worthless.

What if FB ad revenue that is funded by VC equity contracts, and the multiple contracts, and much of that $300 billion market cap is revealed as illusory? What if the Amazon flywheel runs in the opposite direction (both AWS, as an expression of the VC bubble, and the traditional business, as an expression of consumer spending), and some of that $317 billion market cap is revealed as illusory?

What if the replacement cycle on Apple devices lengthens, or consumers get tired of paying 100% markups for memory, and some of that $587 billion market cap is revealed as illusory wealth?

Well, then, we'd have a bear market.

Latest Incredible Distressed Bond Trades

• EXXI 3% 3/2018 last trade 5, ytm >150%.
• BTU 4.75% last trade 4, current yield >118%.
• CLF 1/2018 last trade 25.88, current yield 92%.
• LINE 6.25% last trade ~18, ytm ~70%.

Note that these four companies have a combined market cap of $968 million.

Distressed Debt Update

• Peabody 4.75s traded at 5.75, current yield of 83%.
• Energy XXI 3s traded at 12, ytm of 97%
• Goodrich Petroleum 8.875s traded at 17, ytm of 92%.
• Linn Energy 7.75s traded at 19.4, ytm of 58%.
• Arch Coal unsecured debt was "0.75, flat" bid today. That's with coupons due on 12/15.

The equity in all of these companies is most likely worthless. At Arch, Peabody, and Energy XXI, the (subordinated) unsecured debt could also be worthless.

Recent Distressed Bond Trades

Yesterday the EXXI holding company 3%s due 12/2018 traded at 9.5 to yield 105% to maturity (32% current yield). The 9.25% note due 12/2017 has traded in the low 20s to yield 100%+ to maturity (40% yield to maturity).

Peabody did a 1:15 reverse split this morning. The 4.75% sub note traded yesterday at 11.5 for a current yield of 41%. The 6% note due 11/2018 has traded in the high 20s to yield 60% to maturity.

Goodrich Petroleum 8.875% note due 3/2019 has traded around 17 to yield around 90% to maturity.

The Arch Coal unsecured notes are trading in the single digits with current yields higher than 100%!

Linn Energy has a 6.5% due 5/2019 that's trading today for around 27, yielding 54%. Had been single digit ytm% as recently as May 2015.

It is astonishing how many companies have unsecured debt that is worthless. This of course is a sign that lending had become very sloppy.