DISTRESSED DAILY: Endo Debt Swap Could Open J. Crew Trapdoor

May 19, 2020, 12:00 PM

Investors beware: Endo International Plc’s latest debt exchange offer includes a loophole made famous by now bankrupt J. Crew Group Inc., which leaves bondholders vulnerable to asset-stripping maneuvers, according to Covenant Review.

  • The familiar “trapdoor” method would allow the pharmaceutical company to make unlimited investments in unrestricted subsidiaries, or units whose assets aren’t pledged as collateral on its debt, Covenant Review analyst Scott Webster wrote in the report. That would move value away and out of the reach of bondholders.
    • The company is asking for permission from holders who participate in the exchange to amend the existing agreement ...

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