Endo International plc on Aug. 16 filed for Chapter 11 in bankruptcy court in New York after entering into a restructuring support agreement (RSA) with holders of more than a majority of the company's first-lien debt under which debtholders would purchase substantially all of the company's assets for about $6 billion, comprised of a credit bid of roughly $5.863 billion of outstanding first-lien debt and cash in the amount of $127 million, plus assumption of liabilities, the company announced and court filings show.
The Chapter 11 filing was not a surprise, as the company said last week that a Chapter 11 was imminent and the company was in negotiations with an ad hoc group of bondholders.
The stalking horse bid would be subject to higher and better offers. According to the RSA, the bidding procedures for the company's sale process set the following tentative timeline: submission of a non-binding indication of interest by Dec. 14; a bid deadline of Feb. 27, 2023; an auction, if needed, on March 3, 2023; and a hearing to approve the sale on March 9, 2023. Among other things, a qualified competing bid must provide for the cash payment of all the company's first-lien debt, along with $5 million cash on account of certain unencumbered assets and a wind-down amount of $122 million.
The company said the transaction "would substantially reduce outstanding indebtedness, address remaining opioid and other litigation-related claims, and best position Endo for the future."
The company said the transaction contemplates that the company would establish voluntary trusts to be funded with $550 million over 10 years that would be used to resolve "certain opioid claims."
The company also said, "Notably, the company and a consortium of state attorneys general have agreed on certain injunctive terms relating to the sale of Endo's opioid products, including with respect to promotion, funding/grants to third parties, and suspicious order monitoring, which will be presented to the court for approval."
According to the first-day declaration filed in the case by Mark Bradley, the company's CFO, the company launched a formal sales process in September 2021, the outgrowth of a broader effort launched several years earlier, in January 2018, to address the company's growing opioid and other potential liabilities and its deteriorating financial condition. Bradley said the company began discussions with an ad hoc cross-holder group comprised of holders of primarily second-lien and unsecured notes. According to Bradley's declaration, the company has $940.6 million of second lien and $1.345 billion of unsecured debt outstanding.
Bradley said the company's investment banker contacted roughly 76 parties, including 36 strategic and 40 financial buyers, regarding potential interest in an acquisition of the company, either as a whole or by business segment. Of the potential bidders contacted, 23 executed non-disclosure agreements and eight ultimately submitted indications of interest. Five bidders received management presentations and were granted access to a virtual data room.
The company, however, paused this process in January 2022 "to expand its exploration of strategic alternatives" with the cross-holder group, as well as with a committee representing state attorneys' general."
The company began discussions with another ad hoc group representing primarily first-lien lenders and noteholders in April 2022.
Bradley said that during the period of the company's negotiations with the first-lien group, the company continued to "engage with and provide diligence to" the cross-holder group, including the exchange of reorganization plan proposals. Bradley said, however, "The company reached the conclusion that pursuing a plan pathway presented unique challenges for the company in light of the composition of its creditor constituencies, the lack of necessary consensus to achieve a feasible plan, and the nature of its contingent liabilities."
Bradley added, "Once the debtors’ path towards a 363 Sale came into focus, the debtors and the ad hoc first lien group worked quickly to develop and negotiate the RSA, a sale term sheet, and bidding procedures."
Endo's India-based entities are not part of the Chapter 11 proceedings, the company said, adding that it expects to file recognition proceedings in Canada, the United Kingdom, and Australia.
There is no debtor-in-possession financing. The company said its secured creditors consented to its use of cash collateral, adding that the company's "significant cash on hand, coupled with positive cash flow from operations, will provide ample liquidity."
According to the company's Chapter 11 petition, the company has total assets of $6.33 billion and total debts of $9.54 billion. Shareholders listed on the petition include The Vanguard Group, with a 12.07% stake; BlackRock, with a 7.93% stake; Paulson & Co., with a 7.37% stake; and Renaissance Technologies, with a 7.07% stake.
