High yield bonds backing Valeant Pharmaceuticals fell as much as four points in the London session before retracing some losses after the Canadian drugmaker cut its 2016 guidance for a third time, reflecting in part what it said was “the impact of significant disruption…faced over the past nine months.”
The short-tenor 6.75% notes due 2018 slumped two points, to 95/96 early in the session, but recovered a bit, with the most recent block trades at 97, according to sources and trade data. The company’s 5.875% notes due 2023 and 6.125% notes due 2025—tied for the eighth-largest single tranches ever sold, at $3.25 billion apiece—were both super active in the low 80s, but bounced off lows as short-sellers covered quick trades. Sources relay low quotes of 81/82 and 79.5/80.5, respectively, but a mild recovery is underway, with recent prints at 82.75 and 81.75, trade data show.
The €1.5 billion issue of 4.5% notes due 2023 dropped four points to 74–75, from 78 before the announcement. The notes have since bounced back to 78 as U.S buyers stepped in, according to sources.
Over in derivatives, five-year CDS in the name widened roughly 9% this morning, to 9.5/11.5 points upfront, according to Markit. While about $87,500 more expensive today, at approximately $1.05 million at the midpoint upfront payment, in addition to the $500,000 annual payment, to protect $10 million of Valeant bonds, it’s still a bit cheaper than the record wides of 13.5 points upfront in mid-April.
The company’s equity, which trades on the NYSE under the ticker VRX, plunged 31% to $22.53. The company’s stock has lost more than 90% of its value from its August 2015 peak.
Over in the leveraged loan market, the pharmaceutical concern’s loans softened on the news, with the TLF due 2022 (L+425, 0.75% LIBOR floor) marked at 97.75/98.25, from 98.5/99 previously, according to sources.
The company said it now expects to generate adjusted EBITDA in the range of $4.8–4.95 billion, from $5.6–5.8 billion previously.
For the quarter ended March 31, Valeant reported a loss of $373.7 million, or $1.08 a share, compared with a profit of $97.7 million, or 29 cents a share in the year-ago period. The results also fell short of the S&P Global Market Intelligence consensus estimate for a loss of $329.77 million, or 94 cents a share.
Revenue climbed 9.3% to $2.37 billion, beating the consensus estimate of $2.33 billion.
Valeant said in its conference call that it expects to be in compliance with its debt covenants this year.
The B/B2 company ended the quarter with $1.2 billion in cash and long-term debt of $31.3 billion, of which it said it plans to pay down $1.7 billion by the end of December.
Valeant avoided defaulting on its debt agreements by filing the delayed report. As reported, the company received a notice of default from holders of its 5.5% senior unsecured notes due 2023 for failing to file its first-quarter 2016 results in a timely manner. The company in April also avoided default after it filed its annual report having delayed due to concerns over its accounting practices.
Note that Valeant is the second-largest issuer of performing loans in the S&P/LSTA Leveraged Loan Index, behind only Avago Technologies. It was the most widely held obligor in 2.0 CLOs in the third and fourth quarters of 2015, according to S&P Global Ratings. — Staff reports
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