Skip to main content

Valeant Pharmaceuticals CEO Michael Pearson poses at the company's annual general meeting in Montreal on Tuesday, May 19, 2015.Ryan Remiorz/The Canadian Press

Valeant Pharmaceuticals International Inc.'s long-term-debt saddle bags of nearly $31-billion (U.S.) are looking even heavier after management reduced its repayment targets and issued warnings on Tuesday morning.

The balance sheet has become a big priority for chief executive officer Michael Pearson, who said that the embattled drug maker hopes to get some added cash for debt repayment from "a series of non-core divestitures over the course of the year."

As Valeant mulls selling assets, its share price slid as much as 50 per cent on the Toronto Stock Exchange on Tuesday. That brings its market capitalization to less than $15.4-billion (Canadian), with an enterprise value of $55-billion.

While debt is a bigger deal for the drug maker these days, Valeant is reining in plans to lessen that load. The company is now committed to paying down more than $1.7-billion (U.S.) of debt in 2016, which is about $550-million less than the company pledged to pay down this year at its investor day in mid-December.

Complicating matters, the company also hasn't filed its audited annual report, or 10-K form with U.S. regulators, which could have consequences depending on how creditors react.

Failing to file the report soon could trigger a default, if investors holding 25 per cent of any series of the company's notes choose to deliver that notice. Valeant would then would have 60 days to submit its 10-K forms and "cure" the default. If the default isn't eliminated, lenders could speed up the payment plan.

"Next week, we intend to launch an amendment process with our lenders to waive this cross-default and also to extend the time period for delivery of our 10-K," Linda LaGorga, Valeant's treasurer, said on the call. But she noted that there had been a reduction in cash available for debt repayment and other purposes.

Mr. Pearson said he hopes to file the form "some time in April," but said he "can't commit to that" given the continuing review of some historical financial statements.

While prices on several of Valeant's bonds fell during the day, the losses were nothing compared with the share price decline.

One year ago, Valeant's engine was firing on all cylinders after the $11-billion purchase of gastrointestinal drug maker Salix Pharmaceuticals Ltd. and the $10.1-billion junk-bond sale used to fund it. The company's stock price was $252.29 (Canadian). At the end of 2014, Valeant's total debt rang in at about $15.3-billion (U.S.),

But debt is playing a different role these days – keeping Valeant from the acquisitions that have long driven its growth.

David Amsellem, an analyst with Piper Jaffray & Co., noted that Valeant's debt-to-capital ratio is about 67 per cent, and the debt in relationship to earnings before interest, taxes, depreciation and amortization (EBITDA) was up to 5.8 times at the end of 2015. That means the company has "an inability to do strategic M&A, and an inability to repurchase shares for the foreseeable future," he wrote in a note to shareholders.

Mr. Amsellem downgraded the stock in part owing to the lack of a clear growth plan, but also the "myriad debt covenants" and the "spectre of multiple defaults if the company cannot file its 10-K in the near term."

Mr. Pearson says the company has a lot of work to do to rebuild its credibility, but he is "confident that we can and, again, will be able to begin to deliver the cash flows our shareholders and debt holders are accustomed to."

Report an error

Editorial code of conduct

Tickers mentioned in this story