(Bloomberg) -- Endo International Plc, the latest drugmaker pushed to the brink by opioid lawsuits, skipped a $38 million interest payment as it looks at options including a potential bankruptcy filing, a move advocated by senior lenders.

The decision, which affects the company’s unsecured bonds, means the company sided with senior creditors, who have argued that skipping the bond payment would better prepare the company to reorganize while under court protection. Endo has 30 days to hand over the missing cash before it becomes a formal default. 

The company chose to skip the payment while it keeps talking to creditors about ways to ease its debt load, Endo said in a regulatory filing. The drugmaker has been discussing its options with creditor groups that have conflicting views over its best path for dealing with lawsuits over its role in America’s opioid epidemic, a mounting debt load and a dimmed outlook for its bestselling drug.  

Senior lenders to the company favor bankruptcy and wanted the drugmaker to skip upcoming interest payments to preserve cash, according to people with knowledge of the talks. Endo’s lower-ranking creditors are pressing options that would restrucuture its debts outside of court.

Before Endo said it was skipping the payment, Bloomberg Intelligence credit analyst Mike Holland said the company was probably looking hard at taking such a step, because Endo has vastly reduced earnings expectations following competition for its top drug, Vasostrict.   

“To the dismay of vocal junior bondholders, it appears likely secured lenders and secured bondholders will be in position to drive a possible restructuring process,” Holland said earlier this week.

Representatives of Endo did not return calls and emails seeking comment.

Restructuring Tactic

Distressed companies typically quit making interest payments on unsecured bonds just before filing for bankruptcy, a well-known restructuring tactic that conserves cash and is often a sign that a Chapter 11 filing is coming within weeks.

Endo had a payment due on June 30 to holders of 6% bonds maturing in 2028. At the end of July the company is scheduled to pay $55 million more in interest to various other creditors, according to data compiled by Bloomberg. 

Senior lenders had argued the advantages of skipping the interest payments and filing for bankruptcy, according to the people familiar with the talks. Endo and the lenders have traded proposals as they try to come to a deal, the people said. 

The 6% unsecured notes due 2028 traded at 6 cents on the dollar on Wednesday, according to Trace data. Meanwhile, the 5.875% first-lien bonds due 2024 changed hands at approximately 76 cents on the dollar.

During a bankruptcy Endo could try to cut a deal with government agencies suing the company for its alleged role in the opioid epidemic. That’s the path taken by Purdue Pharma LP and Mallinckrodt Plc. Those companies used court protection to finish working out settlements with groups that accused them of making the opioid addiction epidemic worse.

Endo Held Liable in U.S. Opioid Case Via Default Judgment

Bondholders, who in bankruptcy could not be paid until after senior lenders get what they are due, oppose a Chapter 11 filling, saying it would damage the company’s value needlessly. They prefer an out-of-court restructuring.

Before filing bankruptcy, Purdue and Mallinckrodt negotiated tentative opioid deals with many of the government agencies suing them. Once under court protection, the companies worked to win support from holdouts and to craft a payout plan acceptable to as many creditors as possible. Both cases are in the final stages after having spent hundreds of millions of dollars in legal and other advisory fees.

Endo has settled some of the suits it faces, but has not announced the kind of global deal Purdue and Mallinckrodt reached before their Chapter 11 cases.

In a regulatory filing, Endo told investors opioid litigation may cost about $200 million in its second quarter. 

The opioid epidemic has been blamed for more than 500,000 deaths over two decades. States, cities and counties filed nearly 4,000 suits against more than a dozen drugmakers and distributors seeking compensation for billions spent battling the crisis. 

Last year, Endo hired Skadden, Arps, Slate, Meagher & Flom and PJT Partners to help it address opioid liabilities. 

The company had more than $1.4 billion in unrestricted cash and $640 million in immediate borrowing capacity, which means Endo may not need to take out an expensive loan to fund the cost of bankruptcy. 

Related: Endo’s Junior Bondholders Offer Deals to Head Off Bankruptcy 

(Updates with details on skipped payments from paragraph eight)

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