Angiotech says new Wells Fargo credit facility addresses near-term liquidity needs

By Jennifer Lanning Drey

Portland, Ore., March 5 - Angiotech Pharmaceuticals, Inc. believes its recently completed financing transaction with Wells Fargo Foothill, LLC has addressed its short-term liquidity needs and is a first step toward getting the company in a position to be able to reduce debt, K. Thomas Bailey, chief financial officer of Angiotech, said Thursday during the company's fourth-quarter earnings conference call.

"We feel very comfortable that we will be able to weather this now that we have this transaction in place," he said. "I think that this also suggests there's a conviction that we have a business plan here that is continuing to work to have Wells Fargo step in and do this at this time."

As previously reported, the Wells Fargo financing includes a $10 million delayed-draw term loan and an up to $22.5 million revolving line of credit secured by inventory accounts receivable. The facility will be used to provide additional liquidity and capital resources for working capital and general corporate purposes.

"I think the Wells Fargo facility was an important step in getting us through this last difficult time and moving us into the next generation of the company," William Hunter, the company's chief executive officer, said during the call.

The facility requires the company to maintain certain levels of adjusted EBITDA and interest coverage ratios. During the call, Bailey declined to provide the specifics of the debt covenants but said Angiotech is very comfortable with the levels negotiated and believes it has enough of a margin for error should any issues arise.

Bailey also declined to provide a figure for the minimum level of cash needed to run the business but again said he was comfortable that the current cash level is sufficient for the foreseeable future in combination with the new credit agreement.

Angiotech had cash and short-term investments of $39.8 million at Dec. 31, compared with cash and short-term investments of $109.2 million at the end of 2007.

When asked during the question-and-answer session about the company's level of motivation toward reducing its debt, Hunter said the company intends to reduce its debt but has generally been able to do so due to various circumstances.

"I think the Wells transaction was a first step. It's obviously not the solution, but it's the first step toward where we need to get going," he said.

Angiotech had net debt of $535.2 million at Dec. 31.

Royalty revenues falling

During the last eight quarters, Angiotech's royalty revenue has declined significantly, primarily due to lower-than-expected royalties derived from sales by partner Boston Scientific Corp. of Taxus coronary stent systems. The company said in its earnings release that the decline in royalty revenue has impacted its ability to fund operations and service debt and impacted its liquidity.

Fourth-quarter royalty revenues were $15.7 million, down from $27.2 million for the fourth quarter of 2007.

Angiotech said if royalty revenues were to decline more significantly than expected in the future, its liquidity may be adversely affected.

Exploring alternatives

In response, Angiotech has engaged Blackstone Group to help explore alternatives that could include senior secured financing facilities, financial and strategic alternatives aimed at generating capital to facilitate the company's ability to refinance, and reducing or eliminating its existing debt, the company said in the release.

Additional possibilities include exploring restructuring alternatives with holders of its senior floating-rate notes due 2013 and its 7¾% senior subordinated notes due 2014 and considering proposals from financial parties regarding a significant investment of capital, the company said.

Angiotech posted fourth-quarter adjusted EBITDA of $10.3 million on total revenue of $62.1 million. The figures compare to adjusted EBITDA of $6.8 million on total revenue of $71.4 million.

Angiotech is a Vancouver, B.C.-based specialty pharmaceutical and medical device company.

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