Note 6 - Notes and Other Long-term Receivables

9 Months Ended

Sep. 30, 2012

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

6. Notes and Other Long-term Receivables

Notes and other long-term receivables included the following significant agreements:

Merus Labs Note Receivable and Credit Agreement

In July 2012, PDL loaned $35.0 million to Merus Labs International, Inc. (Merus Labs) in connection with its acquisition of a commercial-stage pharmaceutical product and related assets (the Assets). In addition, PDL agreed to provide a $20.0 million letter of credit on behalf of Merus Labs that the seller of the Assets may draw upon to satisfy the remaining $20.0 million purchase price obligation on July 11, 2013 (Letter of Credit). The Letter of Credit is collateralized by a certificate of deposit reflected on our balance sheet as restricted investment. Draws on the Letter of Credit will be funded from the proceeds of an additional loan to Merus Labs. Outstanding borrowings under the July 2012 loan to Merus Labs bear interest at the rate of 13.5% per annum and outstanding borrowings as a result of draws on the Letter of Credit bear interest at the rate of 14.0% per annum, with all interest payable monthly. Merus Labs is required to make annual principal payments of $5.0 million, $7.5 million, $10.0 million, and $12.5 million in 2012, 2013, 2014, and 2015, respectively, with respect of the July 2012 loan. The borrowings are subject to mandatory prepayments upon certain asset dispositions or debt issuances upon the terms set forth in the credit agreement (Credit Agreement).

The Credit Agreement provides for a number of standard events of default, including payment, bankruptcy, covenant, judgment and cross-defaults.

Senior Secured Note Receivable

In March 2012, the Company executed a $7.5 million two-year senior secured note receivable (Senior Secured Note Receivable). In addition to interest, the note gives PDL certain rights to negotiate for certain royalty assets. The note was recorded net of origination fees that are accreted to the note receivable as interest income using the interest method. The note bore interest at 10% per annum, with interest due semi-annually and final interest due at maturity together with the principal.

In August 2012, PDL and the Borrower amended the note receivable, providing a senior secured note receivable of $10.0 million to replace the original $7.5 million note. The principal of the note receivable will be repaid on March 21, 2014.  Interest will be paid on the $10.0 million note receivable at a rate of 12% per annum with interest payments due semi-annually in March and September, and final interest due at maturity together with the principal. The note was recorded net of origination fees that are accreted to the note receivable as interest income using the interest method. The Company has not assigned a risk grade to the receivable or recorded an allowance for credit loss as PDL anticipates all payments will be received in full when due. No impairment has been recorded as the payments on the note are current.

For fair value information related to our notes and other long-term receivables, see Note 3.