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Why Valeant didn’t rally more on deal with creditors

March 13, 2017

On Thursday, March 9, Valeant Pharmaceuticals International, Inc issued $3.25 billion of debt in two tranches. Many investors expected this debt issuance to help “kick the can” for the struggling company and while VRX did climb from a closing price of $11.57 on Thursday to close at $12.24 on Friday, that price is lower than the $14.38 that it started the month off.

So why didn’t VRX respond more favorably to the debt deal?

While it is true that the deal provides some breathing room for the company, it also further shifts value into the hands of creditors, particularly secured creditors, at the expense of equity holders.

I think that one bond worth paying close attention to, even as a potential equity investor, is the $2.25 billion 6.375% coupon bond due October 15, 2020.

This bond is large enough that it is reasonably liquid – lately it has been trading actively in round lots ($1 million or more).

With a maturity date only 3.5 years away it is a decent indicator of the bond market’s perception of medium term health.

Valeant 6.375% October 2020 Bonds

Valeant 6.375% October 2020 Bonds

These bonds gave up some recent gains as terms and conditions of the new bond deal became clear.

The stock may respond well to the deal and maybe the bottom was set prior to the deal being closed, but I would keep a very close eye on this bond and the entire bond capital structure if I was investing in VRX as this remains a very complicated and difficult situation.

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