Valeant Debt Downgraded at S&P

Valeant Pharmaceuticals International Inc. (NYSE: VRX) got another dose of bad news Thursday morning. Standard & Poor’s Ratings Services dropped the Canadian drugmaker’s corporate credit rating from B+ to B and placed the rating on watch with developing implications. The new rating reflected a drop of one notch to Valeant’s already highly speculative rating.

Earlier this week, Valeant received a default notice from holders of at least a quarter of the company’s $1 billion 5.5% 2023 senior unsecured notes. The notice was delivered due to the company’s delayed filing of its Form 10-K annual report for the 2015 fiscal year.

Analysts at S&P said they were uncertain whether the motivation for the default notice was “simply to seek a consent fee if the 10-K filing is further delayed” or if the notice “will preclude a smooth consent process, should that become necessary.”
[nativounit]
The analysts remain cautious however:

We are encouraged by Valeant’s unwavering expectation to file the 10-K by April 29, the company’s indications that it remains on track to do so, and the ad-hoc committee of the board of directors’ indication that it believes that its review of various Philidor and related accounting matters is complete and no additional items that would require restatements have been identified beyond those required by matters previously identified. Still, we believe the timing of the audit is not completely predictable or fully within Valeant’s control.

If Valeant does submit its 10-K by April 29, there is “potential for an upgrade … providing we also gain further confidence that the company’s guidance around profitability remains achievable.” A downgrade is also possible, “potentially by multiple notches” if Valeant fails to file the 10-K or fails to obtain timely waivers and consents from lenders.

S&P believes that Valeant’s assets “likely exceeds” its outstanding debt (about $30 billion in long-term debt) and views that as “supportive of creditworthiness.”