Valeant pressured as 10-K filed; First Quantum rises on earnings beat; AK Steel sells stock, bonds slip

By Stephanie N. Rotondo

Seattle, April 29 – Distressed bonds were getting pushed around by another round of earnings in month-end trading.

Valeant Pharmaceuticals International Inc. also released its long-awaited annual report on Friday. The report showed that more restatements of previous earnings from 2014 and 2015 needed to be done.

Those bonds were also trading down for the day.

In other earnings news, First Quantum Minerals Ltd. reported a loss for its first quarter. However, the mining company also said that revenue improved year over year. The revenue gain beat estimates.

Away from earnings news, AK Steel Holdings Corp. bonds were losing ground on Friday in the wake of a 52 million-common stock sale.

The equity offering priced early in the day. Proceeds will be used to repay borrowings.

Valeant takes a hit

After months of waiting, investors finally got to see Valeant Pharmaceuticals’ 10-K for 2015.

In filing the annual report, the company was able to avoid a default on its $30 billion of debt.

However, the results included more restatements for 2014 and 2015.

The news did note bode well for the bonds.

A trader said the 5 7/8% notes due 2023 dropped 2 points to 84, as the 7 3/8% notes due 2023 dipped a point to par 7/8.

The 6¾% notes due 2018 weakened by a point to 96¾, the trader said.

Another trader said the 5 7/8% notes were “pretty active,” trading around “84-ish.” The 6 1/8% note due 2025 “definitely looked like it was down,” he added, pegging the issue in an 83½ to 84 context.

The restatement for 2014 reduced fiscal 2014 revenue by approximately 58 million. Net income was cut by about $33 million and EPS by about 9 cents.

The restatement for the first quarter of 2015 resulted in $21 million less in revenue. But net income for the period increased by $24 million, or 7 cents per share.

In addition to announcing the filing of the report, Valeant also disclosed more investigations from state and federal agencies in both the U.S. and Canada.

Gimme Credit LLC analyst Vicki Bryan said in an afternoon comment that the report was “chock full of troubling insights.

“While the changes to reported figures seemed comparatively modest, we are concerned about serious and still developing future risks revealed in the report that could plague Valeant for years, including significantly higher risk than previously indicated for ‘material negative impact’ from substantial impairment charges to write off asset value which, as we long have warned, is now likely overstated as the acquisitions for which Valeant paid so dearly using mountains of debt fail to meet similarly overzealous revenue and profit hurdles going forward,” she wrote.

Bryan also noted the slew of probes the company is facing, including newly announced investigations from North Carolina and the Department of Justice in regards to sales, pricing, distribution and patient assistance programs.

First Quantum beats

First Quantum Minerals’ first-quarter results beat expectations, which helped push the bonds up in Friday trading.

A trader said the 6¾% notes due 2020 added “almost 5 points” to close at 83¼. Another trader said the debt was up as much as 7 to 8 points, trading into the low-80s.

The Vancouver, B.C.-based metals and mining company reported a net loss of $217 million, or 32 cents per share. On an adjusted basis, EPS was 7 cents.

Revenue improved year over year to $720 million from $602 million.

Analysts polled by Thomson Reuters had predicted adjusted EPS of 5 cents per share on revenue of $691.5 million.

AK down on stock sale

AK Steel Holdings priced a $229 million stock offering on Friday, the proceeds of which will be used to pay down the $520 million outstanding under its $1.5 billion asset-based revolving credit facility.

A trader said that while the name had been “on a nice little run,” the bonds came off of the highs.

He called the 7 5/8% notes due 2020 down 3½ points at 85.

“They did give back a little of the gains,” another trader said. He said the 2020 paper had gotten as high as 88 in late trading on Thursday, but went out Friday in an 85 to 86 zip code.

The West Chester, Ohio-based steel producer sold 52 million shares of common stock at $4.40 a share – a 12% discount to Thursday’s closing share price of $4.99 (NYSE: AKS).

The stock finished Friday at $4.68, down 31 cents, or 6.21%.

Market trades mixed

Market indicators were mixed as April trading wrapped up on Friday.

The Markit CDX North America Series 23 index traded down almost a quarter-point to 102.8 bid, 102.92 offered, according to a market source.

The KDP High Yield index, however, traded up to 67.74 from 67.68 on Thursday. Yields tightened to 6.13% from 6.14%.

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