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Bryce_in_TX

Bryce_in_TX
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  • Linn Energy: Something's Got To Give [View article]
    I realize that LINE was in compliance with all covenants as of September 30, 2014 (most recent 10-Q). What I was really taking issue with was if oil stayed at $60 a barrel through 2017 per your comment: "At $14 per share for LINE, $60 WTI oil, and $3.60 Henry Hub gas, LINE could pay a 20% dividend in 2015, a 16% dividend in 2016 and a 12% dividend in 2017 while still maintaining a coverage ratio of 1.1x."

    That would imply an extended decline in the price of oil and I see it as detrimental to LINE and the oil industry in general. I personally think this won't happen, but if it did I would think LINE's borrowing base may be reduced, and that the prolonged price decline might trigger some debt being called in prior to its maturity due to the assets losing a material portion of their value, value which existed when the loans were made. What I just said is just common sense to me.

    One can make a blanket statement that the notes are not due for almost 5 years, but those notes were made when the asset values or reserve values were materially higher because the price of oil was materially higher. That's the way I reason it anyway. So, if the asset values drop for an extended period of time, 3 years or more (hedges on oil largely roll off in two years), it makes sense to me that the cash flows from these assets may not be as great as was thought when the loans were made, hence the assets are not worth as much as when the loans were made, hence the loan amount may be adjusted downward and LINE might have to pay some cash in to cover the adjustment. If I am not being logical or reasonable, in this scenario, please point out my fallacies in my logic.

    From page 12 of the 3rd qtr 10-Q:

    " The Company’s obligations under the LINN Credit Facility are secured by mortgages on certain of its material subsidiaries’ oil and natural gas properties and other personal property as well as a pledge of all ownership interests in the Company’s direct and indirect material subsidiaries. The Company is required to maintain either: 1) mortgages on properties representing at least 80% of the total value of oil and natural gas properties included on its most recent reserve report, or 2) a Collateral Coverage Ratio of at least 2.5 to 1. Collateral Coverage Ratio is defined as the ratio of the present value of future cash flows from proved reserves from the currently mortgaged properties to the lesser of:
    (i) the then-effective borrowing base and (ii) the maximum commitment amount. Additionally, the obligations under the LINN Credit Facility are
    guaranteed by all of the Company’s material subsidiaries, other than Berry, and are required to be guaranteed by any future material subsidiaries. TheCompany is in compliance with all financial and oth
    er covenants of the LINN Credit Facility."

    LINE is required to carry mortgages on properties as collateral against the credit facility. If the value of the properties declines materially and stays in such a decline for 3 years or more, it makes sense that an adjustment in the credit facility might be made; to me anyway. The hedges protect LINE for the most part through 2016, but there is only about 20% of oil production covered in 2017

    From page 17 of the 3rd qtr 10-Q:
    "The Company’s senior notes contain covenants that, among other things, may limit its ability to: (i) pay distributions on, purchase or redeem the
    Company’s units or redeem its subordinated debt; (ii) make investments; (iii) incur or guarantee additional indebtedness or issue certain types of
    equity securities; (iv) create certain liens; (v) sell assets; (vi) consolidate, merge or transfer all or substantially all of the Company’s assets; (vii) enter into agreements that restrict distributions or other payments from the Company’s restricted subsidiaries to the Company; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries."

    It also makes sense to me that such a prolonged retracement of oil prices might cause a significant reduction in the amount of distributions or a suspension at some point, in order to pay down the debt.

    Again, I think this is an unlikely scenario. But, that is how I interpreted your statement.

    http://1.usa.gov/1txRnJd
    Dec 20, 2014. 06:18 AM | 2 Likes Like |Link to Comment
  • Linn Energy: Something's Got To Give [View article]
    "Bryce - I welcome any research you choose to disclose on what specific covenants you are concerned about. I have not found any issues."

    I don't have access to the documents, or know how the calculations are made to determine if asset values are within specific acceptable boundaries. IF you do and do know, how about sharing that very valuable knowledge with us.

    "I have not found any issues." That would imply you do have knowledge of the debt covenants.
    Dec 19, 2014. 03:11 PM | Likes Like |Link to Comment
  • Lawsuit accuses Schorsch of ordering accounting shenanigans [View news story]
    Mark,

    I have studied Enron, some of the transactions in depth. How anyone, especially a CPA, could have concluded those transactions were within FASB guidelines is beyond me. Their own code of ethics prevented Fastow from being involved in the SPEs, but they and the BOD over rode that. Crazy. I've forgotten most of what I studied now, but hedging with yourself to prevent Mark to Market losses? Come on. And in the Blockbuster deal, recording a little over $100 million in revenue on their Broadband division when it wasn't yet in operation, just a pilot program where most of the subscribers were non paying? Then you have the McGarrett I or II transactions where Enron was guaranteeing the debt of the SPE would be paid back to the bank and Enron still was the primary beneficiary of the deal. I don't need a law firm to tell me all of that doesn't fall within FASB guidelines. The SPEs were clearly not indepedent of Enron. Did Duncan and Causey get their CPA certificates out of a cracker jax box? What the hell were they thinking? And there was a lot more. I didn't fall off the turnip truck yesterday.

    David Duncan and Causey and Fastow were all crooks. The firm, Arthur Andersen, was unfairly tarnished and put out of business, but these guys I mentioned are crooks. It sounds like the Justice department in prosecuting the case over stepped their bounds as well. America, so messed up in a lot of ways.
    Dec 19, 2014. 12:40 PM | Likes Like |Link to Comment
  • Lawsuit accuses Schorsch of ordering accounting shenanigans [View news story]
    Mark,

    Not a CPA, but I've been in a couple of situations similar to this. I left both jobs both times. I probably didn't need to in the first job (I was a brand new junior accountant then), but I definitely needed to in the second one. Managers or owners can be idiots. I probably would have stayed on in Ms. McAllister's situation and tried to work to straighten it out internally and I'm sure I would have consulted with Grant Thornton. If the auditors thought it to be no big deal I probably would have signed off on it as well. If she is telling the truth, she just got the shaft for trying to work with these people.

    If you resign, then blow the whistle you are probably viewed as a troublemaker. Who is going to hire you then? If you just resign and look for another job, what do you tell a prospective future employer? And the jerk who messed things up is still there. It ain't easy whichever way you go.

    Maybe being self employed is the best approach. Forget the idiots.
    Dec 19, 2014. 12:05 PM | Likes Like |Link to Comment
  • Linn Energy: Something's Got To Give [View article]
    "At $14 per share for LINE, $60 WTI oil, and $3.60 Henry Hub gas, LINE could pay a 20% dividend in 2015, a 16% dividend in 2016 and a 12% dividend in 2017 while still maintaining a coverage ratio of 1.1x."

    Have you given thought to the impairments that would occur if prices stay this low for that amount of time? And what about the debt covenants if prices stay low? Don't you think creditors would want some of the debt paid back early, instead of distributions paid out, if prices stay this depressed? The loans were made when the assets' FMV was a lot greater than they currently would be at $60 oil. Natural gas has declined as well. And if they gut their cap ex during this time, maintenance and growth, how will they maintain production, as the reserves will decline with each year of production?

    I don't think prices will stay this low for that long a time frame, but if it did I wonder what all of that would do to the company's unit price and its long term viability.
    Dec 19, 2014. 08:01 AM | 2 Likes Like |Link to Comment
  • Linn Energy: Something's Got To Give [View article]
    What is the rational for locking in, with derivatives, $60 oil? If oil stays at that level or lower, I would think LINE and other upstream MLPs will be in a world of hurt come 2017. Impairment write downs galore, probably demands by creditors for repayment of debt, since the debt is greater than the asset value borrowed against. I don't see how locking in $60 oil will help much. I question if LINE could survive past 2017 at current oil prices, given its level of debt and its current FMV of assets and equity.
    Dec 19, 2014. 07:14 AM | 2 Likes Like |Link to Comment
  • The Future Of Microsoft: Windows 10 Goes Both Ways [View article]
    Anyone ever use Linux, and if so did you like it?
    Dec 19, 2014. 04:26 AM | Likes Like |Link to Comment
  • Lawsuit accuses Schorsch of ordering accounting shenanigans [View news story]
    "One thing that people should know about being a licensed CPA, is that if you are asked to falsify financial statements and sign off on them, you have two options:

    1. Refuse, even if you get fired for not signing off.
    2. Resign

    There is no other option. You cannot as a CPA sign off and then claim later after the misstatement comes to light that you were just following orders to do it."

    The fact that the errors were discovered by the Director of External Reporting and not her is a bit troubling. Why didn't she catch it?

    I think I'd have wanted a written statement from Grant Thornton on this to cover my ass. Does one refuse to sign off on an SEC report if the items in question are immaterial? If you refuse to sign and get fired would there be any recovery for you when the items are immaterial? Or would you be blamed as a trouble maker and "anally retentive" because you majored on little things, rather than the big picture? Would the lawsuit then be considered "frivolous" because the items are immaterial and summary judgment ruled against you? Seems like a catch 22 to me. If you don't sign you are screwed and your reputation may be tarnished or ruined, if you sue and bring things to light, or if you do sign but try to resolve the problem you get screwed as well.
    Dec 19, 2014. 03:52 AM | 2 Likes Like |Link to Comment
  • Linn Energy Suffers Another Blow [View article]
    You're good using debt as long as your assets are worth more than what you owe and you can make the payments on the debt. But, your asset values being less than what you owe on them is never a good thing.
    Dec 18, 2014. 11:02 AM | Likes Like |Link to Comment
  • What If Linn Energy 'Pulls A Seadrill?' [View article]
    Darren,

    You raise a good point about having a check on the MLP and REIT models. What I'd like to see are generally accepted accounting standards established for these models so the average investor can get better data from the SEC reports. For a company like LINE, we are too dependent on the MLP for data, IMO. And because it is a different model and GAAP distorts its real economic performance, generally speaking, we are left totally dependent, it seems to me, on the company officers' integrity as to the reliability of what numbers we are given. Banks and creditors, as well as accountants, can be in collusion in misrepresenting the data. The less data we have, the easier it is to manipulate. The non-GAAP data is sparse, barely there.
    Dec 18, 2014. 02:47 AM | 1 Like Like |Link to Comment
  • What If Linn Energy 'Pulls A Seadrill?' [View article]
    I would agree that Alpha Wolf's article is excellent. But, where does his article factor in the payment of principal on the debt? LINE's debt has been increasing in relation to its equity over the past 6 years. Checking other upstream MLPs, its within limits of the others, but when does an MLP like LINE start to pay down debt, or do they? Short term they have reduced the long term debt from $12 Billion to $10 or so, but the overall trend is an increase in relation to its equity and to its total assets, book value wise. Given the current environment, the debt becomes significantly larger in relation to the FMV of its equity and assets. Does LINE plan on paying off a good portion of the debt that matures starting in 5 years or is the plan to roll over most of it, banking on the long term trend of ever higher oil and gas prices to increase the FMV of its assets to keep ratios in line?
    Dec 18, 2014. 02:29 AM | Likes Like |Link to Comment
  • Linn Energy: Distributions About To Get Slashed? [View article]
    " 'Also, it was stated that following repayment of the term loan and a portion of the indebtedness under its revolving credit facility with proceeds from these asset sale transactions, LINN has pro forma liquidity of approximately $2.4 billion as of September 30, 2014.' It would seem to me that this would have been the opportune time for lender margin calls and/or long-term debt restrictions, especially since the distributions are paid monthly, not quarterly."

    I would agree 100%. Margin calls was my concern until I read that in LINE's new release. Now I am confused. If there were going to be calls on the debt, or a restriction on how much LINE can pay out in distributions, why would they have $2.4 billion in liquidity? And that release was made just days ago.
    Dec 18, 2014. 02:06 AM | 4 Likes Like |Link to Comment
  • Why I Agree With Harold Hamm And Continental Resources [View article]
    I think calling a bottom here is premature. We'll see.
    Dec 17, 2014. 02:56 PM | Likes Like |Link to Comment
  • What If Linn Energy 'Pulls A Seadrill?' [View article]
    I'd like to see officers of LINE buy stock at these prices, if it is a good deal.
    Dec 17, 2014. 02:52 PM | 2 Likes Like |Link to Comment
  • Linn Energy: Distributions About To Get Slashed? [View article]
    Bloomberg says LINE will have about $10 Billion of long term debt after paying down debt.

    http://bloom.bg/1qWx8Jy
    Dec 17, 2014. 02:35 PM | Likes Like |Link to Comment
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