Valeant ($VRX) has hit its roughest patch to date--and its creditors don't intend to make things any easier.
The company, running up against a risk of defaulting, has opened a window for creditors to attempt to negotiate key elements of their pacts with the Canadian drugmaker, sources told Reuters, potentially raising the cost of its debt.
Valeant's loan agreements--struck back when the company counted on a string of M&A deals to fuel growth--stipulate that the company has until March 30 to file its audited annual financial reports, the news service notes. After that, lenders can demand accelerated repayment.
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| Valeant CEO J. Michael Pearson |
But the company needs an extension on that deadline, CEO J. Michael Pearson said Tuesday, and he pledged to meet with banks next week to ask for one. His best guess is that the filings will be done in April, though he cautioned that he couldn't guarantee it.
Wrangling with creditors is last thing struggling Valeant needs. On top of channel-stuffing allegations, a price-hike controversy and a slate of investigations from bodies including the SEC and Congress, the company is also dealing with underperformance in a number of its businesses, it said earlier this week. That news--combined with the announcement that it wouldn't meet the March 15 deadline for filing annual financial statements with regulators, putting it at risk of defaulting on its $30 billion pile of debt--sent shareholders running for the doors, with share prices plunging more than 50%.
"This very quickly dematerializes from a growth story into a company that's really standing still, just looking to right its capital structure," Sag Harbor portfolio manager Jim Sanford told the news service. "There's not a lot of equity and market cap to go to, to issue equities and convertible bonds against."
Controversial specialty pharmacy Philidor--which a short-seller in October accused Valeant of using to inflate its top line--is at the root of the delay. Last month, the drugmaker said it would have to restate earnings and hold up its filings after it uncovered $58 million in Philidor-related accounting missteps.
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