Elan eases debt fears with purchase of loan notes

Pharmaceutical company Elan has strengthened its financial position considerably with the purchase of a large chunk of its outstanding convertible loan notes.

The company last night announced that it had spent about $310 million (€263.5 million) buying up to 40 per cent of the liquid yield option notes (LYONs) outstanding at the beginning of 2003.

As a result of the moves to buy back the notes in the market, the company has reduced the bill it faces at the end of the year when the notes are due to be redeemed by more than half - from $1.013 billion to $494 million.

Taking account of LYONs bought back towards the end of 2002, Elan has now acquired about 51 per cent of all the LYONs it had issued, at a total cost of $460 million.

The announcement will add to the recent positive newsflow that has seen Elan's share price move ahead rapidly this year, as it will ease concern about the company's ability to pay back its debt.

The existence and scale of Elan LYONs was one of the major issues for investors when concern was first raised about Elan's accounting early last year.

LYONs are convertible loan notes that can either be redeemed for cash or equity at their maturity date or bought back by the company ahead of that time.

The prospect that Elan might have to issue shares to redeem the LYONs as they fell due in December was seen as an overhang on the share price.

Elan shares have risen sharply in value in the past month as the firm's dispute with King Pharma over the purchase of rights to two of Elan's drugs, Sonata and Skelaxin, was settled and company chief executive Mr Kelly Martin bought 100,000 shares.

The shares hit €7.25 earlier this month, having stood at €3.75 a month ago. They have since retreated - closing at €6.90 yesterday - as investors waited for more news of the company's restructuring. News of the scale of the LYONs buyback is likely to push the share ahead again.