S&P Places Linn Energy, LLC (LINE) on CreditWatch Negative

Standard & Poor's Ratings Services affirms its 'BB-' corporate credit ratings on Houston-based exploration and production company Linn Energy LLC (Nasdaq: LINE). The outlook is stable.

At the same time, we placed our 'B+' ratings on Linn's senior unsecured debt on CreditWatch with negative implications, reflecting the potential for a downgrade following the close of the transaction, depending on the final financing package.

In addition, we affirmed our 'BB-' corporate credit and senior unsecured ratings on wholly owned subsidiary Berry Petroleum Co. The outlook is stable.

The stable outlook reflects our expectations that FFO to debt will average between 15% and 20% and that debt to EBITDA will remain below 5x, which assumes Linn will hedge production of the acquired Devon assets at about $4.25 per million cubic feet equivalent or better.

"We expect Linn to continue to generate significant negative cash flow and that it will be funded under its credit facility, limiting improvement in financial measures," said Standard & Poor's credit analyst Paul Harvey.

We could lower ratings if Linn pursues a more aggressive financial policy such that expected FFO to debt falls below 12% and debt leverage exceeds 5x. This could occur if Linn increases distributions to unitholders without a commensurate increase in cash flows, or if it fails to reduce growth-oriented spending that would result in higher-than-expected negative free cash flow.

An upgrade will require expectations that Linn would maintain debt leverage below 4x and FFO to debt above 20% on a sustained basis. This could prove challenging given Linn's aggressive distribution policy and our forecast of substantial negative free cash flow. Nevertheless, Linn could reach this level through equity-financed acquisitions resulting in improved financial measures.

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