Source: The Wall Street Journal
By AUSTEN HUFFORD
Updated March 30, 2016 11:45 a.m. ET
Valeant Pharmaceuticals International Inc. sought some room to maneuver Wednesday, asking its lenders to relax some debt-covenant terms and give it an additional month to file its delayed annual report.
The Canadian drug company said it had begun seeking a deal with its lenders to stave off a potential default, as it had said it would do earlier this month. Lenders could force Valeant into default as soon as April 29 if the company can’t file its 10-K annual report with the Securities and Exchange Commission by then. The filing has been delayed by an internal investigation into issues over Valeant’s accounting and business practices that arose last October.’
Valeant has said it plans to file by April 29, but in case it can’t meet that deadline, the company is asking lenders to give it until May 31. Valeant also wants an extension to July 31 of the deadline for filing its quarterly report for the current first quarter.
Valeant also said Wednesday the internal committee assigned to investigate its accounting practices is “nearer” to finishing its work and hasn’t identified any additional items impacting its financial statements beyond the ones identified earlier.
Earlier this month, Chief Executive Michael Pearson had said the company was hoping to file its overdue quarterly report in April but that he “can’t commit to that.” Valeant is seeking a replacement for Mr. Pearson, the architect of its business strategy, though he is staying with the company until a replacement is found.
Valeant’s proposed changes to lenders would restrict Valeant’s ability to make certain acquisitions, pay dividends or make other payments until the financial statements are filed and the company achieves certain financial metrics.
Backing away from recent guidance, Valeant said it is asking lenders to ease one of its loan covenants requiring the company to meet a minimum ratio of profits to interest costs. The move would “provide additional cushion,” the company said. On a March 15 call with investors, Valeant said it expected to be in compliance with financial covenants on its debt agreements in 2015 and 2016.
Valeant’s bonds traded slightly higher, possibly reflecting relief among investors that a resolution to the company’s reporting issues appeared to be in sight. The bond due in 2025 traded Wednesday morning at roughly 78 cents, up about 1 cent from Tuesday’s levels. A 2018 bond was up 0.5 cents to 91 cents, according to MarketAxess.
Valeant acknowledged in February that it had found an error that would result in an earnings restatement because it had recognized a chunk of revenue too soon.
Earlier this month, Valeant said it would change its basic business model of acquiring drugs already on the market and sometimes raising their prices substantially to increase revenue. While its signature model wowed Wall Street at the time, it also drew pressure from drug payers and politicians. Presidential candidate Hillary Clinton specifically called out Valeant in a campaign ad, saying she was “going after” them for “predatory pricing.”
Shares of the company fell 3.1% to $28.03 in midday trading. The stock has still fallen by more than half this month and is down sharply from its all-time closing high of $262.52 in August of last year.