As Linn Energy reportedly considers bankruptcy, the company might alter its corporate structure or merge with its corporate affiliate to shield investors from a tax hit, TheStreet TV anchor Rhonda Schaffler reports in the above video.
NEW YORK (TheStreet) -- Linn Energy (LINE) stock is plummeting 11.24% to $1.42 in afternoon trading on Thursday, as the oil and natural gas company explores changing its corporate structure to insulate investors from a tax hit related to a likely debt restructuring, sources told the Wall Street Journal.
As oil prices have plunged roughly 60% since the summer of 2014, Linn has been pressured to consider debt-restructuring options and a potential bankruptcy, the Journal notes.
Even though Linn Energy's stock price has tanked from $30 per share two years ago, investors might still owe taxes on debt that is excused in a bankruptcy or out-of-court restructuring.
This is because Linn Energy is taxed like a master limited partnership, which passes tax burdens and a share of its income to investors rather than paying corporate taxes itself.
The company is considering workarounds that might shield investors from a large tax bill related to a debt reduction, the Journal adds.
Options include allowing Linn to merge with a publicly traded corporate affiliate, LinnCo (LNCO), or letting investors trade Linn units for LinnCo shares before a restructuring.
Separately, TheStreet Ratings team rates the stock as a "sell" with a ratings score of D.
Linn Energy's weaknesses include its deteriorating net income, generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.
You can view the full analysis from the report here: LINE
TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this article's author.