Elan to raise $425m to cut debt

ELAN made another step towards its financial recovery yesterday, by launching a bond and equity issue to pay down part of its debt pile.

Elan said it would issue 35 million new shares, and issue a convertible bond which will raise around $425 million for the pharmaceutical firm.

Elan said the proceeds from the offerings will be used to repurchase outstanding Liquid Yield Option Notes, or LYONs, which are due to for repayment in 2018, but can be repurchased by Elan in mid-December. It said any excess proceeds raised would be put towards general corporate purposes.

Elan's share offer of 35 million shares represents a 10% dilution of its existing share capital. The price of the rights issue will be announced within the next two weeks, coinciding with the publication of the company’s third quarter financial results.

Elan will also issue a $250 million guaranteed convertible bond. To proceed with the bond issue, Elan received a waiver from other debt holders, which will cost the company $16.8-$21m in fees.

“This removes the speculation concerning Elan’s intentions on this near-term debt. This fundraising, if successful, will offer the company more financial comfort looking out over the short to medium term, albeit at some upfront dilution to equity holders. Elan has also availed of sizeable, longer dated debt, a funding flexibility that had not been assumed by everybody,” Davy Stockbrokers said in a research report yesterday.

Elan has raised more than $1.6 billion through asset disposals to meet its debt requirements, and last week sold four pain treatment products and related assets to AaiPharma, to raise an additional $100m. Brokers said further disposals could be on the way to shore up its liquidity.

“We understand the asset divestiture programme remains in place, even in light of this offering, potentially providing further comfort over the medium term,” Davy analyst Jack Gorman said Although the equity and bond issue was seen as broadly positive by analysts, the company’s share price fell 4.5% yesterday, to 4.47 on the Irish stock market.

“Overall the fundings will allow Elan to eliminate the balance sheet liquidity issues,” NCB Stockbrokers said.

Elan was once the biggest company in Ireland by market value, but saw its share price collapse by more than 90% last year, over claims about its accounting practices which prompted an investigation by the US Securities & Exchange Commission. This investigation is still ongoing, and the company is not expecting the results of the inquiry to be published until next year.

Following yesterday’s announcement from Elan, Standard & Poor’s credit rating service said it will raise Elan’s debt rating when the bond issue is completed. It said the move “relieves near-term financial pressure on Elan.”