Wiki · Precedent2022
Endo International — 2022 Restricted Payment Litigation
Endo International plc; first-lien term lenders v. management
Doctrine
Builder-basket restricted-payment capacity computes as drafted: 50% of Consolidated Net Income accrues from the Closing Date as defined, and lenders cannot retroactively re-read the CNI accrual mechanics to constrain a post-hoc dividend.
Signature move
Builder-basket dividend funded from accumulated CNI
Narrative
Endo declared a builder-basket dividend in late 2021 funded by accumulated Consolidated Net Income under the Available Amount provision of its term loan. First-lien lenders challenged the calculation, arguing that CNI had been overstated through aggressive add-backs and that the post-dividend leverage was inconsistent with the financial maintenance covenants then in force.
The court ruled for Endo, holding that the agreement defined CNI by reference to a specified set of GAAP adjustments and that the borrower had calculated the Available Amount in good faith using those adjustments. The court rejected the lender argument that the spirit of the financial covenant should constrain otherwise-permitted restricted payments under §7.02(g).
Endo filed Chapter 11 in August 2022 on opioid liability; the dividend was not unwound and lenders received their pro-rata share of the eventual recovery in the Restricted-Group estate.
Market impact
Confirmed that builder-basket mechanics work as drafted and that lenders relying on add-back challenges have a steep hill to climb. Drove subsequent agreements toward tighter CNI definitions and add-back caps, though sponsor-favorable drafting remains the market norm.
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