Endo outlines plans for $2.6 billion facility, $1.3 billion notes

By Sara Rosenberg

New York, Nov. 6 - Endo Health Solutions Inc. plans on getting a $2.6 billion senior secured credit facility and issuing $1.3 billion of senior notes in connection with its planned acquisition of Paladin Labs Inc., according to an 8-K filed with the Securities and Exchange Commission on Wednesday.

The credit facility consists of a $750 million five-year revolver, a $1.1 billion five-year term loan A, of which up to $440 million will be available in Canadian dollars, and a $750 million seven-year term loan B.

Pricing on the revolver is expected at Libor plus 200 basis points with a 35 bps unused fee, pricing on the term loan A is expected at Libor plus 200 bps, and pricing on the term loan B is expected at Libor plus 300 bps with a 0.75% Libor floor.

The term loan B is anticipated to be issued at a discount of 99½ and have 101 soft call protection for six months.

Financial covenants include a maximum leverage ratio and a minimum interest coverage ratio of 3 times.

Amortization on the term loan A is 3.75% in year one, 5% in year two, 7.5% in year three, 10% in year four and 15% in year five, and amortization on the term loan B is 1% per annum.

The notes are backed by a commitment for a $1.3 billion one-year senior unsecured bridge loan that is expected to be priced at Libor plus 600 bps, stepping up by 50 bps every three months until it hits a cap. There is a 1% Libor floor.

Deutsche Bank Securities Inc. and RBC Capital Markets are the lead banks on the financing, with Deutsche left lead on the credit facility and RBC left lead on the bridge loan.

Proceeds from the financing will be used to repay some of the company's existing debt and fund the early repurchase of its convertible notes due April 2015.

Net debt to adjusted EBITDA will be 2.4 times, with the company expecting to be able to rapidly deleverage.

Under the agreement, each of Endo and Paladin will be acquired by a newly formed Irish holding company, New Endo.

Paladin shareholders will receive 1.6331 shares of New Endo stock and C$1.16 in cash, for a value of C$77.00 per share. The stock-and-cash transaction is valued at about $1.6 billion, of which around 98% will be paid in shares of stock.

Current Endo shareholders will receive one share of New Endo for each share of Endo they own at closing.

At closing, current Endo shareholders will own around 77.5% of New Endo, and current Paladin shareholders will own about 22.5% of New Endo.

Closing is expected in the first half of 2014, subject to regulatory approvals in the United States, Canada and South Africa, the approval of both companies' shareholders, the approval of the Superior Court of Quebec, the registration and listing of New Endo shares and customary conditions.

Endo is a Malvern, Pa.-based specialty health-care company. Paladin is a Montreal-based specialty pharmaceutical company.

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