Linn Energy LLC has become one of the largest victims of the oil price rout, filing for bankruptcy so it can implement an agreement with creditors to restructure its debt burden and obtain $2.2 billion in new financing.
Wednesday’s move to seek Chapter 11 protection also includes LinnCo LLC, a publicly traded affiliate, and Berry Petroleum, which Linn acquired for $2.5 billion in 2013 in a deal that saddled the oil and gas producer with Berry’s debts.
Linn has made other recent acquisitions, including the $2.3 billion purchase of assets from Devon Energy in 2014, but as the Casper (Wyo.) Star Tribune reports, “Those deals came back to haunt the company following the collapse of oil and gas prices.”
The Chapter 11 petition listed total liabilities of $9.97 billion against assets of $1.56 billion. The debt load is about twice that of Samson Resources and Energy XXI, two of the largest oil and gas companies to file in the current downturn.
“Like many others in our industry, Linn has been impacted by continued low commodity prices,” Linn CEO Mark Ellis said in a news release. “We believe that these steps will provide us the financial flexibility to successfully manage in the current commodity price environment and, when combined with constructive agreements with our remaining creditors and potential third-party financing, will provide a platform for future growth.”
Linn began warning in March that a Chapter 11 filing may be “unavoidable,” and said last month it had reached a settlement with bondholders on a restructuring. The plan, which wipes out shareholders, is supported by two-thirds of creditors and includes a new $2.2 billion reserve-based term loan and a term loan credit facility.
But the bankruptcy could be complicated by the fact that Linn is taxed as a master limited partnership. Stockholders “could be facing a hefty tax bill as they are hit with taxes on debt that the partnership eliminates,” The Wall Street Journal said.
MLPs “bankrolled the shale boom,” the WSJ noted, “buying up the older, more predictable fields that other drillers were trying to jettison to chase new prospects in flashier shale formations.”