Concordia ad hoc bondholder group seeks to sign NDA; outlines concerns in letter

23 November 2016

by Jon Berke, and Paunie Samreth

 

An ad hoc group of Concordia International unsecured bondholders has sent a letter to the CFO Edward Borkowski expressing concerns about the company’s prospects in light of near-term financial and regulatory developments.

 

The unsecured bondholders, who collectively hold under 50% of the company’s USD 790m in 9.5% senior unsecured notes due 2022 and USD 735m in 7% senior notes due 2023, are organized with legal counsel Akin Gump.

 

The letter, dated 7 November, outlines the noteholder group’s wish to engage management in talks over potential strategic alternative and restructuring options. Noteholders also maintain in the letter that they are willing to execute non-disclosure agreements to facilitate such talks.

 

Concordia acquired Amidpharm Mercury Limited (AMCo) from European private equity firm Cinven in October 2015. As part of the deal, Concordia is required to pay GBP 144m to Cinven in the form of an earn-out; half of which is due next month, while the balance is due in February 2017.

 

The ad hoc group’s letter asserts that Concordia shouldn’t be on the hook for this payment as a result of an investigation launched late last month by the UK Competition and Markets Authority (CMA) into suspected breaches of competition law in the pharmaceutical sector. The earn-out is dependent on the revenue generated by certain business units acquired by Concordia in the deal and is the portion of Concordia’s ongoing business likely affected by the CMA investigation, according to the 7 November letter.

 

A decision by the company to skip next month’s payment to Cinven would trigger a default across the entire capital structure, noted a bondholder. However, given that skipping out on the payment would be viewed as a positive by many debtholders, the borrower would likely be able to negotiate a default waiver with bondholders and lenders, he added.

 

Concordia said publicly the CMA investigation pre-dates its ownership of the international segment. This implies that Cinven got the material benefit of the unfair pricing practice and that any fees imposed on Concordia will largely arise out of AMCo during Cinven’s stewardship and there it should “mitigate and/or eliminate” the need to make that earn-out consideration.

 

In the longer run, there is a proposed Health Service Medical Supplies (Costs) Bill in the UK, which if enacted, would permanently regulate the rising costs of generic drug.

 

Separately, the ad hoc group expresses concerns about the company’s recent 3Q16 earnings and the recent resignation of the company’s founder Mark Thompson as CEO.