In Form 10-K filed on March 15, 2016, LINN Energy, LLC’s auditor, KPMG LLP, raised substantial doubt about the Company’s ability to continue as a going concern. According to KPMG, the Company has suffered recurring losses from operations and is in violation of a restrictive covenant and expects to be in violation of financial covenants contained in its credit facilities that would accelerate the maturity of the outstanding indebtedness making it immediately due and payable. If the Company is unable to reach an agreement with its creditors prior to any of the above described accelerations, the Company could be required to immediately file for protection under Chapter 11 of the U.S. Bankruptcy Code.
On March 15, 2016, Standard & Poor’s Ratings Services lowered its corporate credit ratings on Linn Energy, LLC and its subsidiary Berry Petroleum Co. LLC to D from CCC. At the same time, Standard & Poor’s lowered the issue-level rating on subsidiary Berry Petroleum’s senior unsecured debt to D from CCC-. “The ‘D’ rating reflects Linn Energy’s announcement that it has elected not to make the interest payment on its 7.75% senior notes due 2021, 6.5% senior notes due 2021, and subsidiary Berry Petroleum’s senior notes due 2022, and our belief that the company will not make this payment before the 30-day grace period ends,” said Standard & Poor’s credit analyst Michael Tsai.
On March 16, 2016, Moody’s Investors Service downgraded Linn Energy, LLC’s corporate family rating to Ca from Caa1, its probability of default rating to Ca-PD from Caa2-PD, its second lien secured notes to C, its unsecured notes to C and Berry Petroleum Company’s senior unsecured notes to Ca from Caa2. According to Moody’s, the ratings reflect its weak asset coverage of debt, unsustainable capital structure and challenged liquidity profile. If the Company is unsuccessful in its private restructuring efforts, it may file a voluntary petition for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code. Read more on distressed companies.
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