Valeant Pharmaceuticals down as Left goes short; Intelsat dwindles; little follow-through in Claire’s

By Stephanie N. Rotondo

Seattle, July 13 – A distressed debt trader said there was “a little respite from the recent high-yield feeding frenzy” on Wednesday, thus resulting in a weaker tone to the market.

The trader said most names traded off half a point to a point on the day, with some losing even more by the bell.

“It kind of got exacerbated going into the close,” he said.

Valeant Pharmaceuticals International Inc. was one such loser, as its bonds declined as much as 2 points during the midweek session. The downward move came as Andrew Left of Citron Research said he was once again short on the company’s stock.

The bonds were also pressured by news the company’s former chief executive officer had slashed his holdings in the company.

Intelsat SA paper was also trending lower, though there wasn’t any fresh news to explain the decline.

As for Claire’s Stores Inc.’s 9% notes due 2019, those bonds were “bid lower than yesterday” at 53, according to a trader.

However, the trader noted that there was little follow-through in the name after the company announced a weak forecast for the second-quarter.

In an 8-K filed on Monday, the Pembroke Pines, Fla.-based retailer said that as of July 10, same-store sales were down 5.9%, consisting of a decline of 4.2% in North America and an 8.6% decrease in Europe. Expectations for adjusted EBITDA were placed between $37 million and $41 million for the second fiscal quarter, which compared to $59.9 million the year before.

Operating income was also forecast lower, in a $25 million to $29 million range. By comparison, operating income was $38.7 million the previous year.

While the gloomy forecast was deemed in line with expectations by Gimme Credit LLC analyst Evan Mann, he noted in an afternoon comment that there were certainly negative implications.

“Liquidity has now become a defining issue,” he wrote. “At a minimum, a broader distressed debt exchange offer is required sooner rather than later.”

Mann also suggested that private equity owner Apollo Capital Management was “positioning itself to actively participate in what is becoming an increasing likelihood of a bankruptcy filing.”

Claire’s has $260 million of 10½% senior subordinated notes coming due on June 1, 2017.

Valeant paper slips

Valeant Pharmaceuticals’ debt came under pressure on Wednesday, as short-seller Andrew Left said he had taken another short position in the company’s stock.

Left also opined – not for the first time – that the equity would soon be worth nothing.

Additionally, it was reported that J. Michael Pearson, former CEO of the Canadian drugmaker, had sold off nearly 5 million of his shares and options in the company – a number much higher than previously thought.

The news continued to pour out on Wednesday, as it was learned Sequoia Fund – once the company’s largest shareholder – had completely sold off its Valeant holdings.

In response to the outpouring of news, the company’s debt drifted down. Still, a trader remarked that the bonds were “not really down more than the market.”

He pegged the 6 1/8% notes due 2025 at 83 1/8, off 2 points for the day. The 6¾% notes due 2018 were meantime deemed 1½ points lower at 98.

For his part, Left has long been a critic of Valeant and was one of the first to call out the company’s accounting practices. His firm, Citron Research, called the company the “pharmaceutical Enron.”

Pearson left the company in March, as the government probed the company’s business and accounting practices. An internal investigation resulted in several years of restated earnings and lower revenue projections.

Intelsat trickles down

Intelsat bonds were busy, but weaker on Wednesday.

A trader said the 8% notes due 2024 dipped a deuce to 92. The 7¼% notes due 2019 were down just a touch at 70¼.

On June 30, Intelsat sold $490 million of 9½% senior secured notes due 2022 via its Intelsat Jackson Holdings SA unit. The proceeds were used to fund a tender offer for three series of Intelsat Jackson notes.

The tender itself was originally slated to be valued at $625 million, but was later reduced to $463 million.

The tender is set to expire on Thursday at 11:59 p.m. ET.

Last week, debtholder Aurelius Capital Management sent a letter to the Luxembourg-based commercial satellite services provider, accusing the company of using the same assets to secure two separate pieces of debt.

The hedge fund has previously alleged that the company is in default of some of its debt.

Intelsat called both of the allegations baseless.

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