LINN Energy and Berry file bankruptcy, ink support deal with lenders

By Caroline Salls

Pittsburgh, May 11 – LINN Energy, LLC, LinnCo, LLC and Berry Petroleum Co., LLC filed Chapter 11 bankruptcy Wednesday in the U.S. Bankruptcy Court for the Southern District of Texas to implement a restructuring support agreement with holders of at least 66.67% of the principal amount outstanding under LINN’s amended and restated credit agreement and Berry’s second amended and restated credit agreement, according to a news release.

The company said it expects its operations across its asset base to continue in the ordinary course throughout the Chapter 11 process.

“After our review of the available options, with the assistance of our financial and legal advisers, we determined that this court-supervised financial restructuring process is the best course of action for the company and our stakeholders,” chairman, president and chief executive officer Mark Ellis said in the release.

“Like many others in our industry, LINN has been impacted by continued low commodity prices. 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.”

Under the restructuring support agreement, the parties agreed to support a plan that would include a new LINN $2.2 billion reserve-based and term loan credit facility, the consensual use of LINN and Berry’s cash collateral to fund the Chapter 11 cases and the broad terms of a comprehensive restructuring of the company’s debt.

Plan terms

According to an 8-K filed with the Securities and Exchange Commission, the key terms of the plan include the following:

• LINN credit facility claimants will receive participation in a new $2.2 billion reserve-based and term loan credit facility and payment of the remainder of claims in cash or, to the extent not viable, a later-agreed-upon alternative consideration;

• The company’s 12% senior secured second-lien notes due December 2020 will be allowed as a $2 billion unsecured claim consistent with an April 4 settlement agreement;

• 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 in to-be-determined allocations;

• Berry will separate from the LINN debtors, and 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;

• 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. Under the support agreement, Berry may undertake a marketing process for the opportunity to sponsor its plan; and

• All existing equity interests of LINN, LinnCo and Berry will be extinguished without recovery.

Exit facility

The company said the new LINN exit facility will consist of a term loan in the amount of $800 million and a revolving loan in the initial amount of $1.4 billion.

The term loan will mature on the earlier of June 30, 2021 and the day before the fourth anniversary of the date of emergence from bankruptcy, with interest payable at Libor plus 750 basis points. The revolver will be composed of a conforming tranche with an initial amount of $1.2 billion and a non-conforming tranche with an initial amount of $200 million.

The conforming tranche will mature on the earlier of June 30, 2021 and the day before the fourth anniversary of the closing date, with an interest rate of Libor plus 350 bps. The non-conforming tranche will mature on the earlier of Dec. 31, 2020 and the day before the date that is three years and six months after the closing, with an interest rate of Libor plus 550 bps.

In addition, the plan calls for the establishment of a customary management incentive plan under which no less than 10% of the new LINN common stock and new Berry common stock, respectively, will be reserved for grants made to the officers and other key employees of the respective reorganized entities.

LINN said it expects the cash available to it during its Chapter 11 cases to likely provide sufficient liquidity to support the business during the financial restructuring process. As such, the company said it does not currently intend to seek debtor-in-possession financing.

The company filed various customary motions with the court in support of its financial restructuring, including motions that will allow it to continue to pay employee wages and provide health care and other defined benefits without interruption and to pay suppliers and vendors in full under normal terms for goods and services provided on or after the Chapter 11 filing date.

Exchange offer

As previously reported, LinnCo launched an offering period on April 26 to exchange each outstanding unit of LINN for one LinnCo share. The offering period will expire at midnight ET on May 23. The company requested court approval to keep the exchange offer open uninterrupted.

LINN said the purpose of the exchange offer is to permit holders of its units to maintain their economic interest in LINN through LinnCo, an entity that is taxed as a corporation rather than a partnership, which may allow LINN unitholders to avoid future allocations of taxable income and loss, including cancellation of debt income that could result from the court-supervised reorganization process.

Debt details

According to court documents, LINN had $11.61 billion of total assets and $8.28 billion of total debt as of March 31.

The company’s largest unsecured creditors are Wilmington Trust Co. of Wilmington, Del., with a $785.58 million 8 5/8% senior unsecured notes claim, a $600.73 million 6¼% senior unsecured notes claim, a $580.24 million 6½% senior unsecured notes claim and a $399.13 million 6½% senior unsecured notes claim, and Bank of New York Mellon Trust Co., NA of Los Angeles, with a $598.53 million Berry 6 3/8% senior unsecured notes claim and a $270.45 million Berry 6¾% senior unsecured notes claim.

The bankruptcy filing constitutes an event of default under the company’s amended and restated credit agreement, its 6½% senior notes due May 2019, its 6¼% senior notes due November 2019, its 8 5/8% senior notes due April 2020, its 12% senior secured second-lien notes due December 2020, its 7¾% senior notes due February 2021 and its 6½% senior notes due September 2021 as well as Berry’s second amended and restated credit agreement, 6¾% senior notes due November 2020 and 6 3/8% senior notes due September 2022.

However, LINN said any efforts to enforce the payment obligations are automatically stayed as a result of the bankruptcy filing.

Kirkland & Ellis LLP is acting as legal adviser to LINN, Lazard is acting as its financial adviser, and AlixPartners is its restructuring adviser.

LINN Energy is a Houston-based oil and gas company. The Chapter 11 case number is 16-60040.

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