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Sasha Padbidri

Bill Weisbrod

Specialty pharmaceutical company Endo raised $2.5bn of exit financing from the leveraged finance market this week as it prepares to emerge from bankruptcy later this month. But are LevFin investors sold on the resiliency of the reorganized business?

Endo filed for Chapter 11 bankruptcy in August 2022 to address litigation tied to the opioid epidemic, in addition to reworking its $8bn debt pile. The company’s restructuring plan, which received court approval in March, will see 95% of the company handed over to its lender group including Oaktree Capital Management, Silver Point Capital and Bain Capital.

Proceeds of the exit financing will go towards opioid settlement payments and cash distributions to first-lien claim holders under the restructuring plan. The $2.5bn was initially split between $1.25bn of loans and $1.25bn of senior secured bonds, but the loan portion was upsized to $1.5bn while the bonds were downsized to $1bn.

Led by Goldman Sachs, the loan was talked at SOFR+475bps-500bps (0.5% floor) and 98-98.5 OID before pricing at SOFR+450bps with a 99 OID. The bonds, which are led by JP Morgan, were talked at 8.5%-8.75% before pricing at par to yield 8.5%.

Sources following the company had mixed feelings about its emergence from bankruptcy.

While the restructuring shaves off roughly 69% of Endo’s pre-petition debt and reduces its post-emergence net leverage to 3x (versus pre-emergence net leverage of 9.7x), the company’s revenues outside of its branded pharmaceutical segment have been posting declines due to “competitive pressures” on several products.

As a result of this, Endo’s 2024 financial projections include $1.685bn-$1.77bn of total revenue and $615m-$645m of EBITDA. This is significantly lower than $2.011bn of total revenue and $761.8m of adjusted EBITDA it reported for FY 2023.

“If we see a big decline in EBITDA over the year in a pharmaceutical name coming out of bankruptcy, that’s not for us. I could find plenty of businesses that look a lot better than this,” said an analyst following the company.

Endo’s customer and product concentration also remains fairly high post-bankruptcy. The company’s top four customers — Cencora, McKesson, Cardinal Health and CVS — generate 87% of revenue. Of its product offerings, XIAFLEX, a prescription medicine used to treat Peyronie’s disease, generated 24% of the company’s revenue in 2023. For more details, check out our Credit QuickTake here.

But not all investors were put off by the product concentration.

“One could argue this is a problem,” said a buysider. “But this is a credit that has been in our market previously, so investors probably know its pros and cons very well. Plus the spread on the loan was very attractive to us.”

Spokespeople for Endo and Goldman Sachs did not return a request for comment. JP Morgan declined to comment.

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Endo bags Chapter 11 exit financing but questions linger over its future

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