(Bloomberg) — Endo International Plc, the latest drugmaker impaired by opioid lawsuits, must decide whether to skip more than $90 million in interest payments as it contemplates a potential bankruptcy filing.
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The company has been discussing its options with creditor groups that have conflicting views over its best path for dealing with lawsuits over its role in America’s opioid epidemic, a mounting debt load and a dimmed outlook for its bestselling drug.
The company’s senior lenders have advocated for a bankruptcy filing and want the company to skip upcoming interest payments to preserve cash, according to people with knowledge of the talks. Endo’s lower-ranking creditors — the ones that would collect the bulk of interest due Thursday and at the end of July, are pressing options that would allow the drugmaker to restructure outside of court.
Given vastly reduced earnings expectations following competition to its top drug, Vasostrict, Endo may be looking hard at forgoing its nearly $40 million bond payment due Thursday as the value of the company declines, said Bloomberg Intelligence credit analyst Mike Holland. Mike Holland.
“To the dismay of vocal junior bondholders, it appears likely secured lenders and secured bondholders will be in position to drive a possible restructuring process,” he said.
Representatives of Endo did not return calls and emails seeking comment.
Restructuring Tactic
Distressed companies typically quit making interest payments on unsecured bonds just before filing for bankruptcy, a well-known restructuring tactic that conserves cash and is often a sign that a Chapter 11 filing is coming within weeks.
Endo has a payment due on June 30 to holders of 6% bonds maturing in 2028. At the end of July the company is scheduled to pay $55 million more in interest to various other creditors, according to data collected by Bloomberg.
Senior lenders have argued the advantages of skipping the interest payments and filing for bankruptcy, according to the people familiar with the talks. Endo and the lenders have been trading proposals as they try to come to a deal, the people said.
The 6% unsecured notes due 2028 traded at 6 cents on the dollar Wednesday, according to Trace data. Meanwhile, the 5.875% first-lien bonds due 2024 changed hands at approximately 76 cents on the dollar.
During a bankruptcy Endo could try to cut a deal with government agencies suing the company for its alleged role in the opioid epidemic. That’s the path taken by Purdue Pharma LP and Mallinckrodt Plc. Those companies used court protection to finish working out settlements with groups that accused them of making the opioid addiction epidemic worse.
Endo Held Liable in U.S. Opioid Case Via Default Judgment
Bondholders, who in bankruptcy could not be paid until after senior lenders get what they are due, oppose a Chapter 11 filling, saying it would damage the company’s value needlessly. They prefer an out-of-court restructuring.
Before filing bankruptcy, Purdue and Mallinckrodt negotiated tentative opioid deals with many of the government agencies suing them. Once under court protection, the companies worked to win support from holdouts and to craft a payout plan acceptable to as many creditors as possible. Both cases are in the final stages after having spent hundreds of millions of dollars in legal and other advisory fees.
Endo has settled some of the suits it faces, but has not announced the kind of global deal Purdue and Mallinckrodt reached before their Chapter 11 cases.
In a regulatory filing, Endo told investors opioid litigation may cost about $200 million in its second quarter.
The opioid epidemic has been blamed for more than 500,000 deaths over two decades. States, cities and counties filed nearly 4,000 suits against more than a dozen drugmakers and distributors seeking compensation for billions spent battling the crisis.
Last year, Endo hired Skadden, Arps, Slate, Meagher & Flom and PJT Partners to help it address opioid liabilities.
The company had more than $1.4 billion in unrestricted cash and $640 million in immediate borrowing capacity, which means Endo may not need to take out an expensive loan to fund the cost of bankruptcy.
Related: Endo’s Junior Bondholders Offer Deals to Head Off Bankruptcy
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