PHARMACEUTICAL FIRM Elan is set to raise some $200 million as part of its plans to reduce gross debt by 20 per cent.
On Tuesday, Elan announced a three-step plan to cut its debt from $1.5 billion to $1.2 billion, and the first step of this plan is to issue $200 million in senior notes, which carry a coupon of 8.75 per cent and a maturity date of 2016.
Then, the proceeds of this transaction, along with $100 million of Elan’s cash on hand (which comes to about $900 million in total), will be used to redeem $300 million of floating rate notes due in 2011.
This step will reduce Elan’s debt by $100 million, and push out the firm’s debt maturity profile.
In order to bring its debt down by the full 20 per cent, Elan will then, as part of the conditions arising from Johnson Johnson’s (JJ) acquisition of an 18.4 per cent stake last year, pay down, using cash, approximately $190 million of debt which is due in 2013.
The terms of the JJ deal require the firm to use the $885 million proceeds from the sale to either reinvest in Elan’s business, or to reduce its debt.
The net effect of the three steps will be to reduce Elan’s debt by $290 million, and according to a spokesman for the firm it expects to have cash balances of $400 million at the end of the process (and after paying a US fine imposed for rogue marketing).
Elan expects to continue generating cash in the future following on from the $50 million in cash it generated in the first half of the year. If Elan is successful in its refinancing, it will then have 34 per cent of its debt maturing in 2013, and 66 per cent in 2016.
Moody’s Investors Services said yesterday that Elan’s refinancing would not affect Elan’s B2 rating and that the developments are positive for the firm’s credit profile.
