Prior to Linn's disclosure of the SEC's review, some prominent Linn Energy shareholders had supported the company's accounting practices and the sustainability of its dividend payouts.
In the wake of Hedgeye's analysis, TheStreet first reported Leon Cooperman-run hedge fund Omega Advisors was continuing to support Linn Energy as its leading outside shareholder.
In a letter sent to Barron's published on June 22, Cooperman noted that Linn's non-GAAP distributable cash flow metric would, by definition, exclude the costs of its capitalized energy hedges.
In response Barron's said Linn's deduction of those costs from Ebitda and DCF presented an "incomplete and overly optimistic picture" of the company's financial health. It favors GAAP metrics such as Linn's quarterly net loss of $222 million.Linn Energy hedges its energy price risk about four-to-five years into the future, in an effort to minimize the volatility of its oil and gas production revenue. The company said in recent investor presentations it has stopped entering into new put contracts and will favor costless swaps that historically have made the bulk of of its hedges. Through a spokesperson, Omega Advisors declined to add further comment on Linn Energy in the wake of the SEC's informal review. Omega Advisors is Linn Energy's largest outside investor, with a 3.05% holding in the company's shares worth more than $200 million, according to March 31 SEC filings compiled by Bloomberg. Omega also owns 1.96% of LinnCo, the data show. Jim Cramer, founder of TheStreet and contributor to Real Money Pro, currently owns Linn Energy shares in his Action Alerts PLUS charitable trust, along with co-portfolio manager Stephanie Link. Cramer has supported Linn Energy and invited CEO Mark E. Ellis on his CNBC show Mad Money to rebut Barron's analysis. On July 2, Link said in a Real Money Pro post that the charitable trust would sell 1,400 Linn Energy shares at $29 apiece given the SEC's informal review. "Our rules have always been to sell a stock with an SEC investigation -- because we have no edge in knowing what the outcome will be," Link wrote, while noting that the company's net asset value (NAV) remains unchanged at $40 a share and it continues to carry a 8.7% dividend yield. Link said Action Alerts PLUS would continue to own 1,000 Linn Energy shares after its stake sale, roughly 1.2% of the overall portfolio. Cramer echoed the decision later in the day on Mad Money. -- Written by Antoine Gara in New York Follow @antoinegara
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