(FROM THE WALL STREET JOURNAL 3/31/16)
By Michael Rapoport and Jacquie McNish
Valeant Pharmaceuticals International Inc. said it was seeking more room from lenders to stave off a potential default. But stock investors were unnerved, as Valeant inched back from earlier assurances about its ability to hit financial targets required by its lenders.
The Canadian drug company, struggling in recent months with questions over its accounting and business practices, said it had begun seeking a deal with lenders to give it more time to file its delayed 10-K annual report. Valeant also said it was seeking "additional cushion" from lenders on some terms of its debt.
The changes sought would make it easier for Valeant to comply with requirements in its credit agreements to show lenders it is financially stable, such as generating a certain level of earnings compared with its interest costs.
Just two weeks ago, Valeant said it expected to have no trouble meeting those financial targets throughout 2016. Its shares fell $1.91, or 6.6%, on Wednesday to $27.07. The shares are down nearly 90% since the stock's high last August.
Concessions from lenders are critical for Valeant: The lenders could force Valeant into default April 29 if its annual report hasn't been filed -- a date Valeant said Wednesday it is asking to push back to May 31. Failing to comply with debt-agreement financial metrics also could put the company in jeopardy.
In a measure of the issue's importance, investor William Ackman, who joined Valeant's board earlier this month in an attempt to reverse its slide, personally made calls to key bankers, including, according to people familiar with the matter, J.P. Morgan Chase & Co. Chief Executive James Dimon.
Valeant had said March 15 that based on its financial guidance, "We expect to be in compliance" with debt terms throughout 2016. But Valeant said Wednesday it wants lenders to relax the requirement for how much in earnings the company must generate relative to the interest costs on its $31 billion debt load.
The company also said it was asking lenders for changes in "certain financial definitions" in its agreements. That could mean the method of calculating Valeant's earnings that lenders use in determining those measures could be revised, thus helping Valeant meet the mandated levels.
"It's asking for a little wiggle room," said David Maris, a Wells Fargo & Co. analyst.
Valeant said Wednesday it was "comfortable with its current liquidity position and cash-flow generation for the rest of the year, and remains well positioned to meet its obligations."
Two weeks ago, Valeant Treasurer Linda LaGorga had made similar remarks on a conference call, but said Valeant expected strong cash flow for the rest of 2016 "and beyond."
The proposal is viewed as good for holders of Valeant's debt because it would push the company to reduce debt rather than expand to potentially reward shareholders. Valeant's bonds traded slightly higher on Wednesday.
In return for the proposed concessions, Valeant would face restrictions on acquisitions and other investments and would have to apply the net proceeds from any asset sales to prepaying its term loans.
Any changes to the credit agreements would have to be approved by lenders holding at least 50% of the company's loans, Valeant said.
(END) Dow Jones Newswires
March 31, 2016 02:48 ET (06:48 GMT)
© 2016 Dow Jones & Company, Inc.
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