Valeant Pharmaceuticals International Inc. (NYSE: VRX) on Wednesday secured a commitment from loan holders to amend terms of its debt, buying time as the drug maker attempts to resuscitate itself. After VRX released the earnings last month, the price went down from $80 to $20 due to both the missed earnings and presentation mistakes from the CFO who’s already dismissed. This week, VRX made sure the final annual report will be released later and the financials from its subsidiary Philidor got no more problems. Wednesday, VRX made deals with the debt holders to loosen the requirements of its financials. Stocks went up to nearly $40 on Thursday.
Valeant convinced holders of more than half of its loans, by principal amount, to push back regulatory filing deadlines and loosen financial conditions on the loans, said people familiar with the matter. Valeant agreed to pay a fee of $50,000 per $10 million of loans to lenders for the amendment and to boost interest rates on the debt by 1 percentage point, though the rate could drop back if Valeant achieves certain financial targets, the people said.
The Canadian company, which has been struggling with business and accounting issues and is in the midst of a leadership transition, said last month that while it intended to file its annual report, or 10-K, within the requirements of its lending agreements, it might miss a deadline, which could allow lenders to accelerate loan payments.
The deal with loan holders marked one of several positive developments this week for Valeant. It said Tuesday that an internal investigation of its prior relationship with a mail-order pharmacy has been completed and hasn’t found problems that would require further earnings restatements. The company has already said its past results will have to be restated because of problems with booking $58 million in revenue.
Then on Wednesday, William Ackman, whose investment firm Pershing Square Capital Management LP owns 9% of Valeant and who recently joined the company’s board, said he was “cautiously optimistic” a replacement for outgoing Valeant CEO Michael Pearson would be named in “a matter of weeks, not months.”
Valeant’s stock gained $5.44, or 19%, Wednesday to close at $34.17, on the heels of a 10% gain Tuesday after news about the internal review. The company’s shares are now at their highest level since mid-March, when they lost more than half their value in a single day after Valeant cut its earnings guidance and said it was in danger of defaulting on its debt if it didn’t file its delayed annual report soon.
The shares gained 4.2% more in after-hours trading Wednesday, after The Wall Street Journal reported on the agreement with loan holders.
Wednesday’s loan agreement is a positive for the company’s lenders. Valeant’s loans are the most widely held investment among loan funds called collateralized loan obligations, or CLOs, according to a March research report by Citigroup Global Markets Inc. These are investment pools that buy debt securities and pass on the income to their own investors.
Together, CLOs own about a third of $11.6 billion in outstanding Valeant loans, according to the report. Banks and other investment funds also hold the loans. In some of the CLOs, Valeant loans account for 4% of total investments, according to data from Moody’s Investors Service.
Lenders on Wednesday said the Valeant deal was attractive, especially after Valeant said there would be no further restatements of its earnings.