Moody's rates Valeant senior notes B1

Moody's Investors Service said it assigned a B1 rating to the proposed $275 million senior notes of Valeant Pharmaceuticals International, a California based holding company.

Initially, Valeant's wholly-owned subsidiary, Ribapharm Inc., will be a co-obligor on the notes. Ribapharm will be a co-obligor on the notes only so long as it has outstanding obligations under Valeant's 6 ½% convertible subordinated notes due 2008.The notes are being established to fund Valeant's intent to retire the 6 ½% convertible subordinated notes due 2008 and for general corporate purposes, including potential acquisitions.

The outlook is stable.

While Moody's said it recognizes management's near-term restructuring accomplishments, the track record of successfully refocusing this company strategically is still being formed. Moreover the growth aspirations of management are dependent on acquisitions that could, along with refunding convertible debt, reduce current sizeable cash balances to the $100-$150 million dollar range. This range appears to be management's comfort level in terms of maintaining cash balances.

Moody's said it also feels that the Ribapharm royalty stream could weaken at a faster rate than management anticipates and it currently comprises a considerable portion of Valeant's cash flow. Finally while the prospects for Viramidine are initially encouraging it remains in clinical trials and is not likely to reach the market, if all goes well, until 2007.

Offsetting these concerns Moody's senior implied rating of B1 recognizes Valeant's product diversity and revenue stability in its core product areas of specialty pharmaceuticals. The rating also recognizes new management's substantially complete record of change and transformation at Valeant.

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