Linn Energy LLC debt dropped after the driller said that it’s trying to cut its liabilities through an exchange offer with creditors, which prompted a downgrade from Moody’s Investors Service.
The oil company’s $1.12 billion 8.625 percent senior unsecured notes maturing April 2020 traded at 23.5 cents on the dollar at 9:50 a.m. in New York, losing 3.5 cents since Nov. 13 when the Linn announced the debt swap proposal, according to Trace, a bond-price reporting system of the Financial Industry Regulatory Authority. The bonds have dropped 68 cents this year.
Linn shares traded at $2.26 a share at 12:54 p.m. in New York. They’ve lost about 77 percent of their value this year.
The decline in Linn’s debt indicates that the exchange offer was seen as damaging, despite the implicit higher value on the security from the proposed swap.
“The exchanged bonds were trading at about 25 cents on the dollar before the exchange, indicating that participating bondholders may gain on the deal if the new secured notes trade above 50 cents,” Spencer Cutter, a Bloomberg Intelligence analyst wrote in a report Tuesday.
Linn said it has agreed with certain creditors to exchange as much as $2 billion of existing unsecured notes into $1 billion of new second-lien securities, according to a company statement.
Moody’s on Friday cut the rating on the Houston-based oil driller by two levels to Caa1, putting it in riskier terrain. The ratings firm wrote in a report that it considered the debt proposal “a distressed exchange.” While Linn’s second-lien financing helps cut the debt, “further debt reduction is necessary in order to improve asset coverage of debt as the hedge book continues to roll off into materially lower commodity prices,” Moody’s analyst Gretchen French wrote in the report.
Linn’s reserve-based lending facility is expected to go down to $3.6 billion at the start of 2016, after it was cut by 10 percent to $4.05 billion in May due to lower commodity prices, the company said earlier this month. The amount wasn’t cut further during the October review. The company has also halted a bond buyback program and reduced capital expenditures for the year to weather the low energy environment.