10/7/09 Breaking News – Aggressive MLP
Aggressive Portfolio holding Linn Energy LLC (NSDQ: LINE) announced Tuesday night (October 6) after the close that it will be selling 6 million new units with an overallotment option for an additional 900,000 units.
Linn Energy is a limited liability company (LLC); units are the equivalent of shares for LLCs and master limited partnerships (MLP).
Linn Energy’s current float is around 106 million shares, so if the full offering and overallotment are sold, as we expect, it would dilute existing unitholders to the tune of about 6.5 percent.
In illiquid post-market action Tuesday night, Linn was trading lower by roughly that amount. This is the normal, knee-jerk reaction to any secondary offering of units.
We’ve written about secondary offerings of new units with regard to several different MLPs over the past few months. Most recently, in mid-September fellow Aggressive Portfolio recommendation Legacy Reserves LP (NSDQ: LGCY) offered 3.3 million new units.
The important point to note is that dips following secondary offerings have proven to be outstanding buying opportunities. In most cases, including Legacy’s, the MLP makes back any ground lost in the wake of the announcement within a few trading days.
In this case, Linn plans to use the proceeds of this equity offering to pay down its credit line. This will free up more firepower for Linn to make strategic acquisitions. Linn recently noted that it sees plenty of opportunities to pick up oil-producing properties at attractive valuations and plans to spend $500 million over the next 18 months on such deals.
Acquisitions will be a key part of Linn’s efforts to boost its distribution; ultimately, this equity offering will lead to higher payouts for unitholders.Use any dip in Linn Energy today as a buying opportunity.