Valeant liquidity ‘solid,’ committed to $1.7 billion debt reduction

By Paul Deckelman

New York, June 7 – Embattled Valeant Pharmaceuticals International Inc.’s liquidity remains “solid,” company executives said on Tuesday, adding that the Laval, Quebec-based drug manufacturer expects to remain in compliance with its credit facility covenants.

Even though the company released reduced full-year guidance versus the projections that it made on its last conference call, three months ago, it remains committed to its previous prediction that it will reduce its overall debt levels by $1.7 billion this year.

“Based on our guidance, we have a solid position on our liquidity,” the company’s newly appointed chairman and chief executive officer, Joseph C. Papa, declared on Valeant’s conference call with analysts following the release of its 2016 first-quarter results.

Papa – who joined the company just last month, replacing longtime head J. Michael Pearson – said that “I expect to be in compliance with the debt covenants throughout 2016 and beyond.”

He also said that “we are now planning to file our quarterly information in a timely fashion for the regulatory SEC filings.”

Valeant had been forced to delay some of its required filings with the Securities and Exchange Commission following the disclosure last year of accounting issues arising out of the treatment of some company sales figures generated through Valeant’s controversial association during the Pearson regime with Phildor RX Services, a specialty online pharmacy company; Valeant severed its ties with Phildor last October.

Debt paydown a priority

Papa asserted that “time will be our friend at Valeant, as we work to improve the Valeant business and, importantly, to pay down debt.”

As of the end of the first quarter on March 31, Valeant had total debt of some $31.98 billion, up from the $31.09 billion on the balance sheet at the end of fiscal 2015 on Dec. 31.

The company’s outstanding debt in the latest quarter included $19.29 billion of senior notes of various coupons and maturities; $11.23 billion of term loan debt, split into six different tranches, and $1.45 billion drawn under its revolving credit facility. The latter was largely due to a $1.2 billion revolver drawdown that took place during the quarter, which the company said at the time was done “to fund cash-timing related to ordinary-course needs of operations, including anticipated upcoming debt payments.”

Linda La Gorga, Valeant’s treasurer and senior vice president, said on the conference call that “while we have revised our guidance [downward] for 2016, our current and forecasted liquidity position remains solid.”

Valeant now expects to book total revenues in 2016 of between $9.9 billion and $10.1 billion, down from guidance of $11 billion to $11.2 billion that it issued in March. It anticipates full-year adjusted EBITDA of $4.80 billion to $4.95 billion, down from $5.6 billion to $5.8 billion previously.

As of March 31, Valeant had $1.3 billion of cash on its books, which was well up from the $597.3 million at Dec. 31, with at least some of the increased cash balance due to the first-quarter revolver draw.

La Gorga said Valeant still has $1.2 billion of cash.

“We remain focused on reducing our permanent debt, which includes our term loans and bonds,” she said.

“Year to date, we have repaid $730 million in term loans through various maturity payments, amortization payments and payments using asset-sale proceeds.” The company has $273 million in mandatory payments remaining in 2016, with “minimal” amortization requirements in 2017, La Gorga said.

“We remain committed to using the vast majority of our cash flow to pay down debt,” she continued.

Debt reduction eyed

La Gorga noted that cash flow available for debt repayment and other purposes has decreased by $500 million from the previously estimated $2.2 billion and is now $1.7 billion. “The reduction in our cash available for debt repayment and other purposes is less than the reduction in adjusted EBITDA, primarily due to a reduction in the use of cash for working capital.”

She further said that on the company’s March investor call, “we said we expected to pay down at least $1.7 billion permanent debt, which is our term loans and bonds. We remain committed to repayment of $1.7 billion of our permanent debt through our cash flow and proceeds from potential non-core asset sales.”

Valeant, she said, will “continuously monitor the market and will remain opportunistic across our bank debt and senior notes to pursue the best approach to meet our goals.” She said that “reducing our total leverage is one of our priorities. Based on our revised 2016 guidance, we expect our net leverage ratio to be approximately 6 times or less by year-end 2016.

Looking ahead to 2017, LaGorga predicted that “our cash flow available for debt repayment will improve, as we would expect it to be greater than $2 billion.”

She noted that the company does not expect to have any payments similar to the payments it had to make under last year’s $1 billion bolt-on acquisition of Sprout Pharmaceuticals Inc., “as we focus on our existing operations and reducing our leverage.”

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