Concordia Plans Restructuring After Missing Interest Payment

(Bloomberg) -- Concordia International Corp., stumbling under debt that the Canadian drugmaker piled on during a takeover spree, is seeking to restructure its finances and cut borrowings by at least $2 billion after missing an interest payment Monday on some unsecured bonds.

Management is pursuing a plan under the Canada Business Corporations Act, according to a statement Friday, which didn’t outline any potential terms of a deal but said the company would continue making payments on its secured debt. The CBCA allows companies to restructure out of court, although the plans require final court approval. Negotiations with lenders will continue during the process, the company said.

"Unfortunately, this looks like another case of a biotech darling that took on too much debt to fuel an aggressive takeover spree and failed to control their cash flow,” said Carlos Rodriguez, a portfolio manager at Biscayne Americas Advisers LLC managing about $900 million. "The best evidence of that is the fact that their bond maturities are years away, yet they are restructuring now. The coupon payments were just too much for what their current cash flow is."

Due Date

The plan was disclosed on the day a bridge loan was set to mature and days after Concordia skipped a $26 million interest payment on Oct. 16. Representatives for Concordia, based in Oakville, Ontario, didn’t immediately respond to a request for comment.

"The decision to use the CBCA process to achieve our financial goals was a strategic one that we believe will protect our business, preserve our cash and give us extra time to negotiate with lenders to ensure we achieve the best possible transaction for our company, employees, suppliers, customers and other business partners," Chief Executive Officer Allan Oberman said in the statement.

The move to file for CBCA before hashing out specific terms with creditors was unusual, said Kristin Going, a partner at Drinker Biddle & Reath’s restructuring practice. “These proposals usually more closely resemble pre-packaged bankruptcy petitions,” Going said, referring to U.S. Chapter 11 filings in which a restructuring plan has been agreed to in advance by the company and its creditors.

The company was granted an interim stay of proceedings in Ontario court to protect it from default or other actions related to its CBCA proceedings, according to the statement.

Concordia took on $3.7 billion in debt during an international acquisition spree and hasn’t posted an annual profit since 2014, with losses so far this year topping $1 billion. It’s been working for months to reduce leverage, hiring advisers at Perella Weinberg Partners and Skadden Arps Slate Meagher & Flom to come up with a solution.

Battle Lines

Its creditors also sought advice. One group of secured debt holders hired financial consultants at Houlihan Lokey and lawyers at White & Case LLP, according to people with knowledge of the matter. A second group that owns both secured and unsecured debt is getting financial advice from Greenhill & Co. and legal help from Paul Weiss Rifkind Wharton & Garrison LLP, according to the people, who asked not to be named because the talks are confidential.

Concordia investors have been battered along with the company’s fortunes. The stock, which topped C$118 two years ago, dropped to 72 cents in Toronto on Friday, while senior unsecured bonds that promised to pay 7 percent interest until 2023 sank to 12 cents on the dollar.

The company had about $340 million in cash at the end of September, according to company documents.

Read more: Debt-laden specialty pharma peers fall on the news

--With assistance from Lisa Lee

To contact the reporters on this story: Eliza Ronalds-Hannon in New York at eronaldshann@bloomberg.net, Allison McNeely in Toronto at amcneely@bloomberg.net, Robert Lee in New York at rlee495@bloomberg.net.

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, James Crombie at jcrombie8@bloomberg.net, Kenneth Pringle

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