Angiotech slashed debt load, leverage, confident about 2013 notes refi

By Paul Deckelman

New York, April 10 - Angiotech Pharmaceuticals Inc., a company mired in bankruptcy at this time last year, was able to sharply cut its debt load and leverage ratio upon its subsequent emergence from its U.S. and Canadian reorganization proceedings, the company said Tuesday.

The Vancouver, B.C.-based medical products maker's president and chief executive officer further declared that cost savings from year-end organizational changes it made and the cash it got up front and could yet receive from a recent asset deal with medical products giant Johnson & Johnson give it a "realistic opportunity" to drive its leverage ratio down farther - possibly as low as the mid-3 times range, from nearly 15 times just a year ago - and leave it able to address next year's maturity of the largest portion of its debt.

In outlining the company's financial results for the fourth quarter and fiscal year ended Dec. 31, K. Thomas Bailey, who also is Angiotech's chief financial officer, said that the changes in the company's structure and its balance sheet leave it "well positioned to not only address our 2013 debt maturity, but to deliver value creation for our shareholders who supported the company through our restructuring last year."

Angiotech reorganizes

Angiotech filed for reorganization in late January 2011 before the Supreme Court of British Columbia under the Companies' Creditors Arrangement Act - Canada's bankruptcy code - and simultaneously sought Chapter 11 protection via a filing with the U.S. Bankruptcy Court in Wilmington, Del. The company said the filings were made necessary by declining royalties from sales of one of the major products it developed several years ago, its Taxus coronary stent system. Those royalties had previously largely supported service on its two major pieces of debt, $250 million of 7¾% senior subordinated notes due 2014 and $325 million of floating-rate senior notes due Dec. 1, 2013.

The company reached agreement with most of the holders of the 7¾% notes in late 2010 on a recapitalization transaction that would exchange those notes for up to 96% of the reorganized company's new stock. That plan was implemented through the reorganization, which was concluded in May 2011.

At the same time, Angiotech also successfully exchanged nearly $325 million of new senior secured floating-rate notes due 2013 for the existing floaters. Besides being secured, the new notes provided a 1.25% Libor floor in addition to the existing interest rate of Libor plus 3.75%, and the holders agreed to eliminate substantially all covenants, giving the company more flexibility in dealing with them.

The company had a debtor-in-possession loan of up to $28 million from Wells Fargo Capital Finance LLC, which was extinguished when it emerged and converted into a revolving credit facility.

Leverage ratio progress

On the conference call detailing the results, Jay Dent, the company's senior vice president for finance and principal accounting officer, noted that the credit facility was whittled down from $22 million of outstanding borrowings last May to $7.5 million by the end of the third quarter on Sept. 30, 2011 to zero by the end of the year, leaving just the floating-rate notes in the capital structure.

With the sharp reduction in debt accomplished through the reorganization and with improved financial performance, Bailey said that the company's ratio of net debt to 12-month trailing adjusted EBITDA declined sharply to 6.1 times at the end of 2011 from 14.7 times at the end of 2010 and when the company entered reorganization shortly afterward. On an annualized basis, with $14.7 million of EBITDA in the fourth quarter, that would translate to a 5.2 times debt ratio for the quarter.

Bailey also noted that those numbers do not reflect two other important developments. He outlined a series of changes the company made in December to cut overhead and streamline the management at its Quill medical products subsidiary, which makes sutures and other knotless wound closure products used by surgeons. Those changes at Quill, in turn, allowed Angiotech to conclude a months-long negotiations process with Johnson & Johnson, under which Angiotech sold intellectual property rights of many Quill technologies to J&J's Ethicon subsidiary while retaining control of Quill itself.

Under the terms of the agreement announced last week, Ethicon paid Angiotech $20 million up front and could make as much as $42 million of additional payments over the next 12 to 18 months, assuming certain sales and production benchmarks are met. Bailey told an analyst during the question-and-answer portion of the call following his and Dent's formal presentations that "we are comfortable about achieving those milestones."

Bailey said that pro-forma for the changes made in December to cut costs and increase efficiency and for the $20 million from Ethicon, the year-end debt ratio would be down to 4.0 times. Assuming Angiotech meets the milestones laid out in the Quill deal and gets the additional $42 million, the ratio would fall still further, Bailey said, to 3.4 times, "which is significant, significant progress" versus a year ago.

Floaters' future?

At the end of the year, the company had $22.2 million of cash and equivalents and $21.3 million of borrowing availability under the revolver. Its liquidity position was augmented by the $20 million of Quill money from J&J. Under a recent credit facility amendment, it may repurchase the floating-rate notes before their maturity.

Bailey refused to comment specifically on the timing of the company's refinancing of the floaters. However, he said, "It would be fair to say that our confidence in our ability to achieve a refinancing event at the point of time where we either elected to do it, or had to do it, is much, much greater given both the transaction we just announced and the different operational initiatives and changes that we put in place.

"The market has also obviously gotten better as well for companies like ours. But I think the underpinnings of our business put us in a position where we believe we can confidently address the maturity that we've got coming up next year. And as we report the first quarters of 2012, I think that conviction will get backed up by the numbers."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.