Valeant mixed as Philidor cast aside; latest earnings weighing on Murray, Consol, Intelsat

By Stephanie N. Rotondo

Seattle, Oct. 30 – The distressed debt market ended the week – and the month – with a negative tone as investors continued to react to both credit-specific news as well as earnings reports.

Valeant Pharmaceuticals International Inc. was in the news again on Friday, announcing that it was severing ties with Philidor, a specialty pharmacy. The parties’ relationship has caused some hubbub in recent weeks, especially after short-seller Citron Research issued a report last week that called the connection into question.

The bonds traded actively on the news but mixed for the day.

Meanwhile, earnings from earlier in the week continued to put pressure on names like Murray Energy Corp., Consol Energy Inc. and Intelsat SA.

Valeant mixed

It was “another eventful day” for Valeant Pharmaceuticals’ debt, a trader said Friday.

Early Friday, the company announced that it would cut ties with Philidor. Philidor then responded that it would shut down operations as soon as possible, consistent with applicable laws.

On the news, the bonds were active but mixed.

The trader saw the 6 1/8% notes due 2025 trading “85 times,” rising just a quarter-point to 85. However, he said the 5 7/8% notes due 2023 fell a shade to 85½, as the 6¾% notes due 2018 slipped a quarter-point to 96¼.

Another market source placed the 7½% notes due 2021 at 91¾ bid, down over 2 points on the day.

The company’s term loan C and D dipped to 93¼ bid, 93¾ offered from 93¾ bid, 94¼ offered, its term loan E slid to 93 bid, 93½ offered from 93 1/8 bid, 93 5/8 offered, and its term loan F fell to 93¼ bid, 93¾ offered from 93 3/8 bid, 93 7/8 offered during the trading session, another trader remarked.

In a news release, Valeant also said that it informed Philidor that to the extent that managed care plans will no longer reimburse prescriptions in process, Valeant will fill them at the company’s expense.

In the third quarter, Philidor represented 6.8% of total Valeant revenue.

The move to separate itself from Philidor comes on the back of a Citron Research report that accused Valeant of fraud and brought into question dealings with Philidor, a specialty pharmacy.

For its part, Valeant has deemed Citron’s report as misleading and has requested a Securities and Exchange Commission investigation.

While Valeant’s efforts to assure investors and consumers have been taken rather well, the struggle is not over.

“The fallout from this latest calamity has likely decimated for the foreseeable future all of Valeant’s foundational growth engines, including aggressive, debt-fund acquisitions and excessive pricing,” wrote Gimme Credit LLC analyst Vicki Bryan in a comment published Friday afternoon. “Valeant’s dramatic deterioration in credit quality has now made high yield debt formidably expensive currency as acquisition funding and now that it had become the face of drug price gouging in the public eye this dampens its ability to quickly turn expensive acquisitions into quick profit generators.”

Bryan noted that the problem is exacerbated by Valeant’s persistent flat to negative core growth.

Valeant is a Laval, Quebec-based specialty pharmaceutical company.

Murray powers down

A trader said Murray Energy’s 11¼% notes due 2021 dropped nearly 7 points on the day, finishing around 29¾.

Another trader said the name was “down a bunch more, almost 10 [points],” trading around 27.

The decent-size decline came just one day after Foresight Energy LP announced its latest quarterly report.

Murray owns a controlling interest in Foresight. Its bonds lost about 12 points in the previous session on the heels of the earnings announcement.

For the third quarter, Foresight reported net income of $8 million, down from $45.4 million the year before. The earnings were impacted by a $5 million charge related to Murray’s $1.4 billion acquisition of a controlling interest in Foresight in April.

Revenue declined 15.6% to $253.1 million. The weaker cash stream was attributed to the current state of the coal markets, as well as lower international shipments.

In addition to reporting earnings, Foresight said Oscar Martinez, its chief financial officer, would resign his post, effective Nov. 13.

His departure is due to the integrations with Murray’s staff. Murray’s James Murphy, chief accounting officer, will take over the CFO role on Nov. 6.

Consol gets beat up

There were “a fair amount of trades” in Consol Energy’s 5 7/8% notes due 2022, a trader said Friday.

The trader pegged the issue at 64, down 4 points.

Another trader said the paper hit a low of 63½, but went out in a 64 to 65 context.

Still, that was down “about 3 points,” he said.

On Tuesday, Pittsburgh-based Consol – a producer of coal and natural gas –reported net income of $119 million, or 52 cents per share, on revenue of $814 million.

By comparison, Consol posted a loss of $1.6 million, or a penny per share, on revenue of $885 million in the third quarter of 2014.

Revenue from gas and liquids declined 21% to $202 million, while coal sales declined 16% to $404 million.

Still, the overall figures were helped by the company’s cost-cutting efforts.

On an adjusted basis – which took away gains from recent asset sales, among other things – Consol had a loss of $64 million, or 28 cents per share.

Long-term debt at the end of the quarter was $2.78 billion.

Intelsat slips

Intelsat, which reported numbers on Thursday, saw its bonds give up the marginal gains it had incurred post-earnings.

A trader called the 8 1/8% notes due 2023 off 5 points at 29¾. A second trader said the 7¾% notes due 2021 was “down a few points” at 60.

For the quarter, the Luxembourg-based satellite services provider reported net income of $78 million, or 66 cents per share, on revenue of $580.8 million.

Revenue was down about 4.5% year over year.

On an adjusted basis, earnings per share came to 85 cents.

Adjusted EBITDA was $458.1 million, or 79% of revenue.

Wall Street had forecast adjusted EPS at 39 cents on revenue of $582.5 million.

Intelsat also affirmed its guidance for 2015. The company is expecting to post full-year revenue of $2.33 billion to $2.38 billion. Adjusted EBITDA is forecast between $1.81 billion to $1.86 billion.

Sara Rosenberg contributed to this article.

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