| WILMINGTON, Del., March 15
WILMINGTON, Del., March 15 Linn Energy LLC
said on Tuesday that it did not fully secure a bond
swap with the agreed collateral, creating a major headache for
its creditors if the oil and gas producer seeks bankruptcy
Linn offered mortgages on a large majority of its oil and
natural gas properties to creditors, including funds managed by
Franklin Templeton Investments, as collateral last year. It did
so to persuade them to accept a 50 percent loss on unsecured
debt amounting to $2 billion.
Linn now has until early April to hand over the mortgages
under a 45-day grace period. But its financial situation is
fragile and the company said bankruptcy may be unavoidable after
it skipped interest payments on its debts on Tuesday.
If Linn fails to deliver the mortgages and then files for
bankruptcy, the debt holders may have to go to court to get the
collateral they thought they had secured, said Ted Gavin, the
founder of Gavin/Solmonese, a restructuring consulting firm.
"That said, they would have an uphill fight from a
disadvantageous position," said Gavin. "As we saw in the
mortgage crisis and the wave of bankruptcies that followed,
possession of documents matters when you're trying to assert a
A spokesperson for Linn declined to comment. Requests for
comment to Franklin Templeton were not immediately returned.
For those creditors who did not participate in the swap and
retained their original unsecured paper, Linn's failure to hand
over the collateral could be welcome news in the event of a
bankruptcy because there would be fewer creditors that must be
paid ahead of them, according to a person familiar with the
The bond swap deal, one of at least 10 that oil and gas
exploration and production companies pursued as they tried to
cut debt and reduce expenses, gave Linn some breathing room as
oil prices lingered below $40 a barrel.
Linn's creditors, holding $2 billion of the company's
unsecured debt, turned in their holdings for $1 billion of new
Since Linn issued the new debt in the swap in November, the
bonds have plummeted in value, to about 15 cents on the dollar
With about $10 billion in debt, if Linn files for bankruptcy
it would be the largest to date in the current oil rout.
(Editing by Carmel Crimmins; Editing by Tom Brown)