Drug company Elan has announced plans to exchange $1.15 billion (€940 million) in debt raised only last November.

The $850 million in fixed rate notes and $300 million in floating rate notes were intended largely to fund the marketing costs of the company's new multiple sclerosis drug Tysabri as well as funding additional research into Alzheimer's and Parkinson's diseases.

The company also redeemed $351 million of debt accrued by a subsidiary company, Epil III, four months ahead of schedule.

The marketing programme for Tysabri has been frozen since the company withdrew the drug from the market last February after two clinical trials patients contracted a rare brain disease.

Elan will not receive any additional proceeds from the exchange programme.

The new loan notes will carry essentially the same terms and coupon - 7.75 per cent on the fixed rate notes and four percentage points above the three-month London inter-bank rate on the floating rate notes - as the November private offering.

The main difference is that they will be more easily tradeable.

Elan was precluded from buying back the original floating rate notes for two years with a four-year bar on the fixed rate notes.

The proposed offering will not feature such restrictions. Elan will be allowed to redeem the floating rate note by November 15th next year for their face value plus outstanding interest and a "make-whole" premium as long as it buys back the whole $300 million.

Thereafter, the company will have to pay a premium on any buyback.

The same broad provisions apply to the fixed rate notes, although the $850 million can be bought back in total at face value up to November 2008.

The company can also use the proceeds of a share placing or rights issue to buy back up to 35 per cent of the notes at a 7.75 per cent premium between February 2006 and November 2007.

The new loan notes will rank as senior unsecured debt.

People who fail to exchange their loan notes under the offer, if the company proceeds, will find themselves restricted in selling the debt prior to its maturity in 2011.

Debtholders availing of the proposed exchange will not face any capital gains or US income tax liability on the transaction, according to the company.

Elan currently has just over $2 billion in outstanding debt, the majority accounted for by the 2011 loan notes.

The balance is repayable in 2008.