Endo/opioids: damages-laden vie with debt-laden for C11 sanctuary

So much for the luck of the opportunistically Irish. Endo, a maker of specialty drugs officially headquartered in Dublin, has filed for bankruptcy protection, citing an unsustainable debt load of $8bn.

Endo’s Irish roots are shallower than those of many other American visitors. The company landed in Ireland just a decade ago through a tax inversion merger. Its longstanding home is in Pennsylvania.

The group prospered for a while after its emigration. In 2015 its market cap exceeded $15bn. But its fortunes eroded. Top drug Vasostrict unexpectedly lost patent protection. Endo’s projected 2022 ebitda is set to be half its level of last year, leaving its debt-to-cash flow ratio at 10 times.

Endo previously sold opioid painkillers that are now the subject of numerous lawsuits by alleged victims as well as governments. Bankruptcy courts will seek to resolve all those claims efficiently. The Chapter 11 process has been widely used by overleveraged companies. Increasingly it is the place to resolve product liability fights too.

The group says it has a deal in place in which senior creditors would exchange $6bn in claims for assets of the company. At the same time, a trust would be created with $550m of cash to compensate opioid sufferers over the next decade.

This deal is only an opening bid. Other investors may offer to buy the remaining assets. Numerous claimants will have to agree to what they think is an actionable payout.

Like peers Purdue Pharma and Mallinckrodt, Endo believes the power of the bankruptcy process to funnel opioid litigation into a single, binding forum is the cleanest way to resolve its liability.

This point is controversial among the lawyers of plaintiffs. Some critics think Chapter 11 is being used as a sanctuary for unethical businesses pursued by legitimate claims. For now, however, there is no obviously better alternative.

Endo’s creditors include hedge funds and others who hope a tidy resolution will snap investments back into the money. This will take a bigger helping of luck than the purchase of an Irish company registration affords.