- The company missed a bond coupon payment on June 30.
- 30-day grace period ends in 2 weeks before the event of default.
- Rumors of negotiations with secured creditors occurring before the bankruptcy filing.
Missed Coupon Payment
Endo International ( ENDP ) missed a coupon payment on its unsecured 6% bonds of 2028 on June 30th. The payment would have cost the company about $38 million. The move should come as no surprise to anyone. Those bonds are trading around $9 vs $100 par value. The June 30 coupon payment alone would have been about a 33% current yield on those bonds.
Missing the payment is not an automatic default. The company has a 30-day grace period, which gives them until July 30th before a bankruptcy filing. I think it is almost a 100% certainty that the company will file a petition for bankruptcy before that date. A recent article in the Wall Street Journal laid out that the company is currently negotiating with its secured bondholders before it files and hopes to use the filing as a means of achieving a global settlement with opioid litigants. The company has been fighting in court or settling the 3,500 cases on a piecemeal basis, something I argued last year to considerable insult and controversy was not a viable strategy. Many detractors seemed to hang their hat on the company's ability to keep stringing along plaintiffs (despite the millions in legal fees such actions cost) while new products such as QWO would save the day. Perhaps the company's management held on to such belief before losing the patent case for Vasostrict blew a massive hole in profits and cash flow.
Sell While You Can
As is common with bankruptcy situations, the stock is still trading with some modest value. I encourage any remaining holders to sell and preserve whatever they can. The unsecured bonds, trading at a 90%+ discount to par, are clearly impaired. They will be ahead of shareholders at receiving any value from the bankrupt estate. So will the opioid litigants. I have been arguing that there is no value in the shares , and I stand by that. I see no possibility for common shares to have any value, and liquidity will decline when the company enters bankruptcy. Perhaps there will be some short-term pops in bankruptcy because of Reddit chat board nonsense. That is not a reasonable investment strategy. Sell while you can.
Conclusion
I will follow up with a full post-mortem when I expect this company to officially file a petition for bankruptcy in two weeks. Until then, I sincerely hope people are not stubborn and pull whatever they can out of this disaster.
For further details see:
Endo: Why I Expect Bankruptcy Filing At Month End