Amylin Trial Testimony: Debt Not Structured With Interest or Principal Payments in Mind

Amylin's "poison put" debt deals were not structured primarily to protect interest and principal payments but to trigger a sudden bulk repayment, according to Professor Michael Roberts of Wharton Business School.

Amylin has $900 million in debt which must be paid immediately if there is a change in control of the board. Such a massive repayment could be financial suicide for the company. The debt is structured that way in order to prevent takeovers by Carl Icahn and Eastbourne Capital, who are currently seeking to put their own slates of directors on the Amylin board because the company's share price has declined so dramatically.

Roberts testified in the Amylin "poison pill" trial, which is going on in Delaware Court of Chancery. Video of the case is being streamed by Courtroom View Network. You can sign up to watch the whole thing here.

In the case, a San Antonio municipal pension fund backed by Eastbourne Capital is seeking to have the poison puts removed so that shareholders can vote for Eastbourne's directors without fear of collapsing the company.

In one exchange, Roberts was asked by the plaintiff's lawyer to describe how Amylin's debt was arranged. Usually, debt investors are concerned with interest and principal repayments (i.e. getting their money back plus a profit). But in Amylin's case, according to this free CVN highlight:

A: ... these particular notes were not necessarily as concerned about protection of the interest and principal payments per se but it appears as if the conversion option was really driving the investment decision.

In fact, the first and third "prong" of Amylin's debt were all about triggering sudden repayments, Roberts said:

Q: Are you familiar with the term "poison puts"?

A: I am.
Q: Would any of these put rights be poison puts as you understand the term?
A: I view prongs one and three as prongs commonly found, or referred to as poison puts.
Q: Could you briefly describe what are prongs one and three?
A: Prong one is a trigger defining the acquisition of at least 50 percent of both voting stock by some person or entity. Prong 3 is what I often refer to as the poison put or the change in the majority of the continuing directors.

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