Issues With The Separation Of Bausch Health's Eye Care Business
Highlights from the report include:
Under both high yield bonds and leveraged loans, generally the only way to make the Restricted Payment required for the dividend in a spin-off is pursuant to: (1) the RP Buildup basket/Available Amount; (2) general RP basket; (3) if present, a Ratio RP exception limited only by compliance with a specified pro forma leverage ratio; and (4) the Neiman Two Step dividend (using investment capacity to unrestrict the business (step one) and then using the carveout for the distribution of the stock of an Unsub (step two). BHC’s debt documents include all these provisions.
In the absence of RP capacity to pay the dividend, the company would have to structure the separation in another way, take out the restrictive debt or obtain consent from its creditors. Unless required in connection with any consent, a spin-off would not mandate that any debt be repaid.
If the company were to remove the business via a sale, two main considerations are: (1) mandated use of proceeds (ie, which debt must or may be repaid); and (2) whether the sale rises to the level of substantially all assets (which would also implicate change of control).
The separated business, regardless of how it is removed, will no longer provide credit support to remainco’s debt, and its guarantees and, for the secured debt, its pledge, will be released. So, in the case of a spin off, the quantum of Bausch Pharma debt may not be reduced, but the assets supporting that debt certainly will be.
If the company goes down the spin-off/amendment route, lenders could require paydowns as part of the approval process. Bondholders would be left out assuming valuation talk is accurate.