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Summary

  • The MLP intends to do a public offering of $1.0 billion of senior notes to raise cash.
  • Following a spending spree coupled with LINE’s monthly distribution to shareholders not always being covered, I cautioned that finances could be an issue going forward.
  • The present news supported my concern over short-term cash but the debt is healthy and does not alter my long-term buy recommendation.

Today it was announced by Linn Energy (NASDAQ:LINE) and LinnCO (NASDAQ:LNCO) that the MLP intends to do a public offering of $1.0 billion of senior notes to raise cash. This $1 billion underwriting will consist of two rounds of 6.5% senior unsecured notes. One set will be due in 2019 and another round of the senior unsecured notes will be due in 2021. There is a special consideration for those due in 2019. The 6.5% senior notes due 2019 are expected to be issued as additional notes after the company issued $750 million of 6.5% senior notes due 2019 back on May 13, 2011. These additional 6.5% senior notes that are due in 2019 will be treated as a single class of debt securities with the previously issue senior notes due 2019. Net proceeds from the offering as well as cash on hand are expected to be used to repay indebtedness outstanding under Linn Energy's bridge loan agreement. Barclays Capital Inc., Scotia Capital [USA] Inc., RBC Capital Markets, LLC, Wells Fargo Securities, LLC, Citigroup Global Markets Inc., Credit Agricole Corporate and Investment Bank, Goldman, Sachs & Co., RBS Securities Inc. and UBS Securities LLC are acting as joint book-running managers for the offering.

When I last opined on the company, Linn was busy trying to close its all-important deal with Berry Petroleum (NYSE:BRY). I viewed the deal as critical because LINE would assume all of BRY's assets as well as the expertise of those working with BRY. The deal was key to help LINE expand its growth into markets in California, the Permian Basin, Texas and the Uinta Basin. The growth from the deal when things would have been up and running at full capacity could see production numbers increase anywhere from 20%-40%. This deal was not cheap as I mentioned in the article. The deal with BRY cost LINE about $5 billion, following their deal to acquire land in the Permian basin which cost another $525 million. With LINE's monthly distribution to shareholders not always being covered, I cautioned that finances could be an issue going forward.

This announcement does not change my long-term outlook for LINE. Although oil prices which have declined are pressuring the company slightly, production is on the rise and the acquisitions are starting to pay off. In turn, distributions to shareholders could rise in the future. The present offering announcement supports my thesis that the company might have needed some short-term cash. But I view this offering has a healthy way to raise cash. With production on the rise, some help from higher oil and natural gas prices would help, but is not necessary. Should oil continue to drop in price, I may revisit my long thesis. For now, things continue to look strong for the company.

Source: Update: Linn Energy Offering $1 Billion In Senior Notes - Impact To My Bull Thesis