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Biotech / Medical : Elan Corporation, plc (ELN) -- Ignore unavailable to you. Want to Upgrade?

To: Icebrg who wrote (1504)	2/5/2002 3:08:41 AM
From: Icebrg	Read Replies (2) \| Respond to of 10345

EPIL and EPIL II. One of the interesting aspects of the Elan saga is Elan's "disclosure" of the existence of two fully owned subsidiaries, which the company according to US GAAP is not allowed to consolidate in their US reporting. Don't ask me why - but the US accounting rules are not always very transparent. To make things look even worse it turns out that Elan has even guaranteed the debt of these subsidiaries. As a matter of fact it is surprising that this matter seems to surprise so many of the analysts. The existence of the two QSEPs is discussed at some length in the annual report of Elan. Anyone saying that he or she is surprised to find out about these entities is in effect also saying that they have never bothered to read the annual report. From the report for the year 2000. (e) Non-consolidated subsidiaries Under Irish GAAP, EPIL and EPIL II have been consolidated as subsidiaries of the group. Elan owns 100% of the equity in both companies. The individual investments held by EPIL and EPIL II have remained on Elan’s balance sheet and the related loan notes have been included as a liability. Elan has expensed the related interest charge in the income statement. Under US GAAP, the companies are qualifying special purpose entities within the meaning of SFAS No. 125, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, as Elan has effected a true legal sale of the investments and has not retained any control over such assets. Accordingly, the transfer of investments to EPIL and EPIL II has been treated as a transfer of the assets at fair value under US GAAP and the related loan notes have not been included as a liability. The reconciling difference to profit arose due to interest costs and profits on disposals. and In June 1999, Elan transferred a portfolio of equity and debt instruments to a special purpose entity, Elan Pharmaceutical Investments Ltd. (“EPIL”). On 29 June 1999, EPIL issued $350.0 million aggregate principal amount of 8.43% Guaranteed Notes in a private placement to a group of financial institutions. The 8.43% Guaranteed Notes are guaranteed on a subordinated basis by Elan. In June 2000, Elan transferred a portfolio of equity and debt instruments to a special purpose entity, Elan Pharmaceutical Investments II Ltd. (“EPIL II”). On 28 June 2000, EPIL II issued $450.0 million aggregate principal amount of 9.56% Guaranteed Notes in a private placement to a group of financial institutions. The 9.56% Guaranteed Notes are guaranteed on a subordinated basis by Elan. With regard to the actual debt Elan is giving the following information. 9.56% Guaranteed Notes In June 2000, the Company transferred a portfolio of equity and debt instruments to a special purpose entity, EPIL II, a wholly owned subsidiary. On 28 June 2000, EPIL II issued $450.0 million aggregate principal amount of senior guaranteed notes due 2004 in a private placement to a group of financial institutions. The investments and cash in EPIL II are held as security against the EPIL II 9.56% Guaranteed Notes. These assets are not available for distribution outside EPIL II. The senior notes and related interest are guaranteed on a subordinated basis by Elan and consequently, in accordance with the provisions of Financial Reporting Standard 5 “Reporting the Substance of Transactions” (“FRS 5”), the investments and related loan are both included separately on the balance sheet. The interest rate attaching to these notes is 9.56% per annum, payable in cash. Issue costs associated with the financing amounted to $5.9 million. Interest charged in the year ended 31 December 2000 amounted to $21.9 million (1999: $Nil). The liability outstanding as at 31 December 2000, net of financing costs, was $445.5 million (1999: $Nil). 8.43% Guaranteed Notes In June 1999, the Company transferred a portfolio of equity and debt instruments to a special purpose entity, EPIL, a wholly owned subsidiary. On 29 June 1999, EPIL issued $350.0 million aggregate principal amount of senior guaranteed notes due 2002 in a private placement to a group of financial institutions. The investments and cash in EPIL are held as security against the EPIL 8.43% Guaranteed Notes. These assets are not available for distribution outside EPIL. The senior notes and related interest are guaranteed on a subordinated basis by Elan and consequently, in accordance with the provisions of FRS 5, the investments and related loan are both included separately on the balance sheet. The interest rate attaching to these notes is 8.43% per annum, payable in cash. Issue costs associated with the financing amounted to $6.0 million. Interest charged in the year ended 31 December 2000 amounted to $29.7 million (1999: $14.8 million). The liability outstanding as at 31 December 2000, net of financing costs, was $348.6 million (1999: $345.0 million). In conclusion, it seems to me that Elan has disclosed the existence of these QSEPs fairly well. The costs associated with these subsidiaries seem to be the interest required for servicing their debt. In addition the investments as such may of course decrease in value. The opposite is also a possibility. Ice