Elan pays £1.3m to maintain credit waiver

Elan, the disaster-stricken Irish drugs group, has been forced to pay compensation to some of its creditors after again failing to file its annual accounts for last year.

Elan, the disaster-stricken Irish drugs group, has been forced to pay compensation to some of its creditors after again failing to file its annual accounts for last year.

The company - whose byzantine accounting policies have been queried by US regulators - yesterday revealed it had paid $2.1m (£1.3m) to holders of about £500m of its debt to prevent them triggering the collapse of the company.

Elan has been in technical default of the debt since failing to file its disputed accounts by 29 July and it has repeatedly been forced to seek waivers from its creditors.

Yesterday Elan made a payment for the first time to secure a waiver, which the company said was agreed in order to "maintain a good working relationship" with the creditors. Shares in Elan - once Ireland's largest company - fell 3 per cent in London, closing at 290p.

Some observers were cheered, however, by Elan's statement that it was working with its auditor, KPMG, "to conclude all audit-related issues" and file its accounts as soon as possible. This was taken to mean that the company has effectively completed its talks with the US regulator, the Securities and Exchange Commission, over the accounting treatment for Elan's controversial off-balance sheet funding vehicles.

The SEC has been investigating these Bermuda-based funding vehicles, called EPIL II and EPIL III, since February 2002. The EPILs sold securities which were backed by Elan's investments in biotech companies, but the value of biotech shares has since collapsed.

Elan has been able to persuade the EPIL holders to waive their right to call in the loans because this would trigger a default on other, more senior debt. EPIL holders would not be first in the queue for repayment if Elan collapses.

Elan will be in default on another £500m of the more senior debt if it still has not filed accounts by 14 September. The company, which has embarked on a massive fire sale of assets to cut debt, would be unable to survive if the senior debt holders call in their loans.

Ian Hunter, analyst at Goodbody Stockbrokers, said the latest waiver from the EPIL holders, which lasts for seven days, was costly as a percentage of the debt. He said: "Annualised, this amounts to $109m, equivalent to a 13 per cent surcharge. Although we believe the company will be given until 14 September to file its accounts, the continuing delay increased nervousness."