Sell LinnCo LLC

On Friday, Linn Energy LLC (NASDAQ: LINE) and closely related LinnCo LLC (NASDAQ: LNCO) announced that “it has started a process to explore strategic alternatives to strengthen its balance sheet and maximize the value of the company, and has hired Lazard as its financial adviser.” The company had also drawn out all of the remaining cash available from its revolving credit line.

This move appears to indicate that Linn can no longer function as an ongoing business with its current level of financial obligations, i.e. interest payments. It is most likely that the company will enter some form of bankruptcy/restructuring. This type of move will wipe out any value of equity shares or units.

I had been holding onto LNCO in both the 30 Day Dividends positions list and my own personal brokerage account. My thought was that at this point the shares would act as a long-term call option on the price of oil, and when crude did start to move higher there would be a significant recovery in share value. From their earnings information, it looked like Linn Energy had enough cash flow from their hedging portfolio to keep the company going through at least the end of 2017. That assumption was wrong. At this point, positions in LINE and LNCO can be viewed as total losses. That happens sometimes in the stock market, and I have learned some serious lessons from this one.

Recommendation: Close out any LNCO positions immediately.