Elan avoided defaulting on as much as $2 billion (€1.76 billion) of debt yesterday after bondholders agreed to give it more time to file its 2002 US accounts with the Securities and Exchange Commission (SEC), writes Jane O'Sullivan, Markets Correspondent.

The company had an extended deadline of yesterday to file its annual report but again failed to do so.

However, it averted a potentially crippling debt default after a majority of holders of $840 million of debt agreed to give it a waiver until August 8th to resolve outstanding accounting issues with the SEC.

Shares in the company recovered Tuesday's losses in New York, adding 17.78 per cent to $4.77, while in Dublin they gained 6 per cent to €4.14.

A spokeswoman for Elan said it had only asked for a 10-day waiver from its bondholders, suggesting the company is confident it can file the accounts by August 8th. Elan also said it did not pay a fee to secure the waiver from the bondholders.

The company is in ongoing discussions with the SEC regarding the appropriate accounting treatment of an off-balance sheet vehicle, Elan Pharmaceutical Investments 3 (EPIL3), and a related transaction.

Elan said yesterday that it expected to restate its 2001 financial results to consolidate EPIL3 from the date of its establishment on March 15th, 2001.

The estimated impact of the restatement will be to reduce Elan's diluted earnings per share for 2001 from $0.95 to around $0.75.

The company also expects that its 2002 accounts will be adjusted to reflect the consolidation of EPIL3 and to consolidate Shelly Bay Holdings, an entity established by Elan and owned by an unaffiliated third party, which acquired certain financial assets from EPIL3 on June 29th, 2002.

The restatement of the 2002 accounts is expected to reduce the diluted loss per share from around $6.87 to $6.69.

Elan said shareholders' equity at the end of last year is expected to be reduced by less than $10 million.

Analysts welcomed the news that the company had averted the prospect of a debt default that could have led to its collapse.

They also noted that the restatements to the accounts were not as bad as feared if Elan had been forced to consolidate all three of the off-balance sheet vehicles it had established.

"These adjustments were slightly higher than we expected although are considerably less than if all three EPIL vehicles had been consolidated," said Mr Peter Frawley, analyst at Merrion Stockbrokers. "Equally importantly, the restatement just affects 2001 and 2002 accounts rather than earlier years, thus reducing, somewhat, the scope for the class-action lawsuits."

However, other uncertainties remain with regard to Elan. The company is still awaiting the outcome of an ongoing investigation by the SEC's division of enforcement, which is separate to the accounting issues raised by the Office of the Chief Accountant and the corporate finance divisions of the SEC.

Confidence in Elan's future has also been dented after Antegren, a key experimental drug for the treatment of Crohn's disease, failed a clinical trial last week.