Creditors pressure Valeant after fall
NEW YORK • Creditors of Valeant Pharmaceuticals International Inc., which has been in violation of lender agreements since Wednesday, are beginning to demand new terms that could further pressure the drugmaker’s business model, according to three people familiar with the matter.
Valeant is losing the confidence of its biggest investor base: debt markets that lent the drugmaker more than US$30 billion to fund its rapid expansion.
Valeant said on Tuesday it would not meet a March 15 deadline for filing its annual financial statements with securities regulators, putting it in danger of defaulting on its US$ 30- billion debt load. Valeant also sharply reduced its forecasts for 2016 profits.
Shares of the company fell more than 50 per cent on the news, cutting its market capitalization to US$11.4 billion and deepening concerns about a business model that has relied largely on acquisitions fuelled by cheap debt.
They fell an additional 11.5 per cent on Thursday in New York to close at US$ 29.69 in New York from a high of US$ 263.70 in August as Valeant has come under growing scrutiny for sharp price hikes on its medicines and its ties to specialty pharmacy Philidor Rx.
The risk of default has offered creditors an opportunity to attempt to renegotiate core elements of their agreements with Valeant, potentially saddling the company with higher costs of debt and more restrictions on how it deploys capital, according to people familiar with the matter.
The sources could not speak on the record because they were not authorized to talk to the media.
“This very quickly dematerializes from a growth story into a company that’s really standing still, just looking to right its capital structure,” said Jim Sanford, portfolio manager for Sag Harbor Advisors, which does not hold Valeant shares. “There’s not a lot of equity and market cap to go to, to issue equities and convertible bonds against.”
Valeant declined to comment.
Under its loan agreements, Vale ant has until March 30 to file audited financial reports. If it fails to do so, it then has 30 days before lenders can demand accelerated repayment.
Valeant said it would meet with banks next week and ask them for an extension on the deadline. On Tuesday, chief executive Michael Pearson said that his best estimate for filing the annual report was April, but that he could not guarantee it.
In anticipation of those meetings, owners of Valeant’s senior bank loans are reaching out to investment banks, including Barclays, who will help mediate the negotiations, the sources said. Barclays did not immediately respond for comment.