Bausch Health: Initial Impressions on the Refinancing Transactions

The new SpinCo Bonds will be guaranteed by the Company and the guarantors of the existing BHC bonds and secured by a parity first lien on the Collateral that secures the first lien secured BHC bonds. They will also be secured by a pledge of 52.5% of BLCO equity held by SpinCo, even though the existing secured BHC bonds will not have this collateral or guarantee from SpinCo.

SpinCo could not have entered into these refinancing transactions while remaining an Unrestricted Subsidiary, as explained in recent research, necessitating its transition to a Restricted Subsidiary.

As a Restricted Subsidiary under the BHC indentures, SpinCo requires sufficient incremental first lien capacity under each of the BHC indentures to incur the new $7.4 billion of secured debt related to the new SpinCo Bonds and the new SpinCo credit agreement.

Although it’s unclear how SpinCo will incur this debt under the BHC Indentures, one possibility is based on the “Phony Ratio Test” language in those indentures. SpinCo will be a non-guarantor Restricted Subsidiary upon closing the refinancing transactions, while Bausch + Lomb will remain an Unrestricted Subsidiary under the BHC bonds.