Elan to raise $400m for debts

Pharmaceuticals group Elan will raise more than $400 million (€374.6 million) to meet short-term debt concerns. The group will issue $250 million in convertible notes and offer 35 million shares to investors outside the United States.

The money will be used to purchase Liquid Yield Option Notes (LYONs) worth $494 million, which the company is committed to redeeming by the end of this year.

The existence and scale of LYON exposure was one of the major issues for investors when concern first surfaced about accounting at Elan early last year.

At its annual general meeting last week, the company said it would not announce how it intended to repay the LYONs until mid-November.

The announcement, which came after US markets closed on Wednesday, was cautiously welcomed by markets yesterday. Shares in the group fell less than 5 per cent in Dublin trade despite the fact that the share offering will dilute existing holdings by 10 per cent. The stock closed down 11.13 per cent on the New York Stock Exchange last night.

Elan, which has been cutting costs and selling assets to meet its debt obligations, is expected to announce pricing details within the next few days. The company hopes to complete the offering on November 5th.

The convertible notes element of the deal, which are expected to have a five-year term, should be completed a week later. Elan said in a statement that the notes would be "fully and unconditionally guaranteed" by the company and would be convertible into shares.

The company's proposal was conditional on waivers from holders of existing subordinate EPIL debt. These have been secured at a cost of up to $21 million.

The stock and note sales, if completed, will still leave Elan heavily in debt. It needs to pay off an estimated $840 million in other so-called EPIL notes in 2004 and 2005, while other notes totalling around $650 million come due in 2008.

Traders in Dublin said the news had been positively received. "It sorts them out and lets them get back to concentrating on the business of developing medicines rather than on accounting issues," said one dealer.

Merrion analyst Mr Peter Frawley said: "If they can manage to get the placing away at a reasonable price, we should see the shares starting to recover."

At last night's closing price, the move would raise almost $425 million. - (Additional reporting, Reuters)