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linn energy message board

Release time:2017-07-24

Editor's PicksLinn Energy - Who Says Bankruptcy Isn't Profitable?Mar.17.16 | About: Linn Energy (LNGG)The MLP InvestorMLPsSummaryLinn's board inexplicably granted 2016 target bonuses to top executives totaling more than $15 million, this while the company faces imminent bankruptcy. Linn's board also expanded a change of control plan that could net Linn's CEO a golden parachute cash payment of more than $15 million. The people receiving such outsized bonuses have been at the company for an average of eight years and are the very people responsible for Linn's impending bankruptcy. As will be surprising to no one who has followed the MLP space for the last two years, Linn Energy is in big trouble and has been on a path to disaster for some time. On March 15, 2016, Linn Energy filed its 10-K, which contained several dire disclosures that make clear that bankruptcy is imminent. Linn disclosed, among other things, the following: "If we are unable to repay or refinance our existing and future debt as it becomes due, whether at maturity or as a result of acceleration, we may be unable to continue as a going concern." (See p. 21) "We are currently in default under the LINN Credit Facility and the Second Lien Indenture." (See p. 21) "We may seek the protection of the United States Bankruptcy Court ('Bankruptcy Court') which may harm our business and place equity holders at significant risk of losing all of their investment in us." (See p. 22) The 10-K contains numerous other disclosures, each of which makes clear that the vultures are circling this near-dead animal and that death is imminent. Bankruptcy Pays ... BIG! A reasonable investor might think that the executive management team that navigated Linn's course to the doorstep of bankruptcy would be feeling their own share of pain. Any equity that the executives have will soon be literally worth $0 (as will the equity held by the public), and surely that hurts. But, much like the over-hyped protection allegedly provided to Linn's unitholders by Linn's hedge book, reality differs greatly from expectations. Take a look at the information below, which comes directly from an 8-K filed by Linn on February 4, 2016. As a reminder, Linn's fate was already sealed at the time of this 8-K filing. Even six weeks ago at the time the 8-K was filed, bankruptcy was a certainty, as evidenced by, among other things, Linn's decision to "max out its credit card" by borrowing every penny it could under its revolving credit facility(an act equivalent to the "last gasping breath" for a public company). In fact, on the same day that Linn announced publicly that it had maxed out its credit facility, it also announced that it had gone to great lengths to protect its ... executive management team. The February 4th 8-Kannounced that Linn's board of directors, who should have been trying to salvage value for unitholders, instead spent their time setting multi-million dollar bonus targets for company executives. The numbers are eye-popping, especially for an insolvent company that has destroyed billions of dollars of unitholders' money. Source: 8-K filed by Linn on February 4, 2016 The numbers in the table above reflect the total compensation (consisting partially of cash and partially of units) that the executive would earn in 2016 if performance targets are hit. The 8-Kstates, "Payments under the Incentive Plan are made quarterly based on achievement of performance goals to be established by the Committee, although the Committee has discretion, for the first quarter of 2016 only, to make the payment based solely on a participant's continued employment with the Company through the end of such quarter." (Emphasis mine). It is curious that the board, in the midst of a crisis, was so willing to pay enormous bonuses to an executive team whose performance, by any measure, has been nothing short of a miserable failure. Who are these "deserving" folks mentioned in the table above? Is it possible that they had nothing to do with Linn's demise and, instead, have been an important part of saving it from even speedier collapse? The short answer is no; the people who will receive millions in bonuses this year are the same people who drove Linn into the ground, as further detailed below. Mark Ellis - Currently serving as the Chairman, President and CEO, Mr. Ellis has been with Linn in executive positions (CEO since 2010, President and COO from 2007-2010) for nine years. Mr. Ellis is partially responsible for the loss of billions of dollars of public unitholders' money. The board set Mr. Ellis' target bonus in 2016 at $6.9 million, which pales in comparison to the approximately $40 million he's been paid over the past four years to run Linn! David Rottino - Currently serving as EVP and CFO, Mr. Rottino has been with Linn in executive positions for eight years. Notably, Mr. Rottino served as a leader of Linn's Business Development team from 2008 until 2015 - the same Business Development team responsible for the Berry Petroleum atrocity. Mr. Rottino is also responsible for the loss of billions of dollars of public unitholders' money. The board set Mr. Rottino's target bonus in 2016 at $2.7 million. Arden Walker, Jr. - Currently serving as EVP and COO, Mr. Walker has been with Linn in executive positions for nine years - making him culpable for Linn's destruction of public unitholder money. The board set Mr. Walker's target bonus in 2016 at $2.7 million. Jamin McNeil - Has been with Linn for nine years in senior roles. The board set Mr. McNeil's target bonus in 2016 at $1.1 million. Thomas Emmons - Has been with Linn for eight years in senior roles. The board set Mr. Emmons' target bonus in 2016 at $1.1 million. Candice Wells - Has been with Linn for five years in senior roles. The board set Ms. Wells' target bonus in 2016 at $1 million. For those keeping track, the rewarded execs have an average tenure of eight years and an average 2016 target incentive bonus (which doesn't even include hefty base salaries) of nearly $2.6 million per person, or $15.5 million in total. What was the board thinking when it made the decision to set these target bonuses?!? These are the very people who are most responsible for Linn's impending bankruptcy! That's Not All! The February 4th 8-Kreads almost like an infomercial. "But that's not all!" In addition to the incredible bonuses listed above, the (exceptionally generous) board also granted the following financial benefits to the disastrous Linn executive management team: Change of Control Protection Plan - On February 2, 2016, the Linn board expanded participation under Linn's change of control protection plan to expand those who are eligible to participate. The 8-K also stated that, upon a change of control that results in an executive's termination, said executive will receive a golden parachute cash payment equal to 2x the sum of ((NYSE:I)) base salary plus (ii) target bonus. For instance, if a change of control occurred at Linn and Mr. Ellis, the CEO mentioned above, were fired (as he should be), he would receive a lump sum cash payment of $15,600,000. (I guess bankruptcy really does pay!) "But that's not all! What else has Mr. Ellis won?" Mr. Ellis and the other Linn execs will also receive 18 months of health care provided under the company's plan at no cost to Mr. Ellis, and will also receive 6 months of outplacement assistance so that he can find another job (I guess $15 million doesn't go as far as it used to). Severance Plan - As if the payments above were not enough, also on February 2, 2016, the Linn board also adopted a Severance Plan. It must have been a fun board meeting - I'm envisioning lots of champagne corks popping and smiles on everyone's faces - since, as a result of the meeting, everyone in the board room was guaranteed to become rich (or stay rich) regardless of what happened to Linn unitholders' billions. The Severance Plan assures company execs that they will be paid handsomely if they are terminated, even if there is not a change of control in the company. Specifically, company execs will receive 18 months of salary, 18 months of free health care and 6 months of job outplace assistance. Cheers! Heads I Win, Tails You Lose Unlike Mr. Ellis and the other captains of the USS Bankruptcy, there will be no payout for Linn unitholders. With Linn's public bonds trading for mere pennies on the dollar, Linn unitholders are likely to be completely wiped out. For those left holding the bag, you might be well-advised to sell your units now while you still can; a 99% loss is better than a complete loss. Bankruptcy pays, just not for you. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks. About this article:ExpandAuthor payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.Tagged: Basic MaterialsWant to share your opinion on this article? Add a comment.Disagree with this article? Submit your own.To report a factual error in this article, click hereFollow The MLP Investor and get email alertsTop Authors|RSS Feeds|Sitemap|About Us|Contact UsTerms of Use|Privacy|Xignite quote data|© 2017 Seeking Alpha

 

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