Valeant bonds firmer after earnings though loans retreat; oils steady despite crude slide

By Paul Deckelman

New York, Oct. 19 – Valeant Pharmaceuticals International, Inc.’s bonds traded busily on Monday, seen unchanged to firmer as investors apparently ignored all of the negative noise surrounding the Canadian specialty drug manufacturer’s pricing policies and focused instead on the better-than-expected quarterly profits it reported as well as its optimistic fourth-quarter and full-year earnings and revenue projections.

Valeant’s term loans C, D and E, however, moved lower, as did the company’s shares.

Elsewhere, traders saw bonds of oil and gas names such as Linn Energy LLC, California Resources Corp. and Chesapeake Energy Corp. unchanged to better despite a big drop in oil prices.

Back in the bank debt market, Weight Watchers International Inc.’s term loans headed higher with news of an equity investment by Oprah Winfrey.

Convertibles traders meantime said that PTC Therapeutics Inc.’s converts slid by multiple points on an outright basis on Monday as the common shares of the South Plainfield, N.J.-based pharmaceutical company fell sharply in what amounted to a delayed reaction to disappointing drug trial data that rocked investors overnight Thursday.

Valeant bonds up despite troubles

Valeant Pharmaceuticals “was a busy name, with earnings out and headline news” about the Laval, Quebec-based specialty drug manufacturer’s decision to change its corporate strategy, a trader said.

However, he characterized its bonds as “relatively unchanged.”

At another desk, a trader saw Valeant’s 6 1/8% notes due 2025 trading between 96 and 96¼ bid.

“Ninety six was where they were trading this morning and where they are now.”

A market source saw those bonds up 1/8 point at 96 bid, with over $16 million traded.

He saw over $18 million of its 5 7/8% notes due 2023 move up more than ½ point to 96¼ bid, while its 7½% notes due 2021 gained 5/8 point on the day, with over $11 million had changed hands.

Valeant’s bonds and its New York Stock Exchange-traded shares were gyrating around last week on the news that federal prosecutors had issued subpoenas demanding documents relating to the company’s drug-pricing policies, distribution methods and its programs for helping patients unable to afford its medications.

Some analysts questioned the viability of the company’s business strategy of buying other companies and then greatly raising the prices on the popular drugs that it inherited

The acquisition-minded company’s chief executive officer, J. Michael Pearson, said on the conference call with analysts following the release of third-quarter earnings that Valeant would shift away from its previous strategy of buying companies having what Pearson called “mispriced” drugs that Valeant would then sharply raise the price of; now, he said, he does not anticipate the company raising prices on any one drug by more than 10%.

During the third quarter, Valeant earned $49.5 million, well down from a year ago.

However, its adjusted earnings per share of $2.74 beat analysts’ expectations of around $2.70 per share of profit. Revenues of $2.787 billion were in line with the forecasts.

Valeant issued updated guidance, projecting that fourth quarter earnings would come in between $4 and $4.20 per share, while full-year earnings are expected to come in at $11.67 and $11.87 per share.

It also predicted a fourth-quarter revenue pickup of $3.25 billion to $3.45 billion, with full year revenues projected at $11 billion to $11.2 billion.

However, Valeant’s rosy promises failed to impress the company’s stockholders – its shares plunged by $13.73, or 7.73%, to close at $163.83, on volume of some 9.9 million shares, almost triple the norm.

In the bank loan market, Valeant’s term loans C, D and E softened Monday in connection with the company’s release of third quarter results, a trader said.

The term loan C and D were quoted at 97 3/8 bid, 97 5/8 offered, down from 97 5/8 bid, 98 1/8 offered, and the term loan E was quoted at 97 3/8 bid, 97 5/8 offered, down from 97½ bid, 98 offered, the trader said. The company’s term loan F was seen at 97 7/8 bid, 98 1/8 offered, relatively unchanged from Friday’s levels of 97 7/8 bid, 98 3/8 offered.

Weight Watchers loan jumps

Also in the bank debt market, Weight Watchers International’s underperforming term loans jumped up in trading by a substantial amount following an announcement that Oprah Winfrey is making an equity investment in the company and joining its board of directors, according to traders.

The New York-based weight management services provider’s B-2 term loan was quoted by one trader at 75 bid, 76 offered, up from 57 bid, 58 offered, and by a second trader at 75½ bid, 77½ offered, up from 57 bid, 58 offered.

And the B-1 term loan was quoted by a trader at 96½ bid, 98½ offered, up from 90 bid, 92 offered.

Under the agreement, Winfrey will purchase newly issued shares representing 10% of the outstanding stock and will receive options to acquire an additional 5% of the fully diluted shares.

The shares are being purchased for $6.79 per share for an aggregate purchase price of about $43.2 million.

Fortescue notes seen lower

Back among the bonds, traders saw Fortescue Metals Group, Ltd.’s various notes off on the day.

“They were pretty active,” one said, “about ¾ point lower on commodity weakness.”

Another trader saw the company’s 9¾% notes due 2022 down more than ¾ point at 101 1/8 bid, with over $20 million having changed hands.

Yet another trader agreed that “the commodities debacle” was the catalyst for the Fortescue bonds moving lower.

He saw its 8¼% notes ending at 87 bid, 87½ offered, while its 6 7/8% notes traded in a 73 to 75 bid context.

Oils withstand lower crude

However, there was no similar run against the bonds of oil and natural gas companies on Monday, despite a steep drop in crude oil prices. The benchmark domestic West Texas Intermediate grade for November delivery, after rising 88 cents per barrel in Friday’s dealings on the New York Mercantile Exchange, nosedived by $1.37 a barrel, or 2.9%, on Monday to settle at $45.89.

Nonetheless, junk-market oilers such as California Resources were seen “unchanged to up 1 point,” a trader said, although he added that he had not seen “any real volume” in the Los Angeles-based exploration and production company’s paper.

“All of them were trading in the 70s, within about a point or so of the others,” he said.

He saw its 6% notes due 2024 going home in a 69 to 70 bid context while its 5% notes due 2020 were around 72 bid, after seeing some trades as high as 74.

A second trader located the 6s at 69¼ bid, 70 offered, up ¼ on the day.

And yet another trader quoted the company’s 5½% notes due 2021 up 1¼ points at 71¼ bid.

A trader saw Houston-based E&P name Linn Energy’s 7¾% notes due 2021 up 1½ points on the day at 34½ bid.

A second trader quoted the company’s 6¾% notes due 2020 at 40-41, “just a little better on the day, though pretty much unchanged from Friday,” with about $8 million traded.

Chesapeake Energy’s 5¾% notes due 2023 were seen ¼ point better on the session at 71¼ bid, with more than $8 million traded. The Oklahoma City-based oiler’s 4 7/8% notes due 2022 were even busier, with over $18 million traded, as the bonds firmed up to 69½ bid.

PTC converts crushed

In the convertibles market, PTC Therapeutics’ 3% paper due 2022, of which $150 million priced in August, traded lower on Monday, a trader said, in continued reaction to disappointing drug-trial data that surfaced last week.

Early in the day, they changed hands into the bid price at 96, a trader said.

Then they dropped to about 93 and after that, traded down to 90. The bonds closed at about 90 bid, 91 offered, compared to a 96 bid, 97 offered close on Friday, a drop of at least 5 points. Over $3 million of those notes traded on a round-lot basis.

The move was “in line” with a big sell-off in the underlying shares to $29.59, which was down $5.66, or 16%. Those shares had plunged in after-hours action on Thursday but then rallied on Friday, ending up 11%, before reversing course again on Monday and ending well down on the day.

“There were a bunch of prints at 90.75 on the offer side,” one of the convertibles traders said.

“But in all, not that many bonds traded.”

There is some uncertainty about how significant the drug-trial data would be in the scheme of things.

“The data wasn’t good, but it was probably good enough,” the trader said.

PTC said that its phase 3 trial of Translarna failed to meet certain endpoints but added that it would still submit the compound for FDA approval this year as planned.

Translama (ataluren) is PTC’s lead product for the treatment of muscular dystrophy and cystic fibrosis and is in Phase 3 clinical trials.

Still it was a “pretty big sell-off” for the stock, a second trader, who was not active in the name, said.

The biotech sector, in general, has been jumpy.

“It was all over the place,” a trader said.

“This morning, it was reacting to [the possibility of vice president Joe] Biden coming into the [presidential] race because it lowers the chances for Hillary [Clinton], who has been an outspoken opponent of independent drug pricing. Also the Republicans are now talking about drug pricing – so it has been volatile,” he added.

-Sara Rosenberg and Rebecca Melvin contributed to this review

© 2015 Prospect News.
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