Valeant touts progress on debt cutting, reaches $5 billion pay-down target sooner than expected

By Paul Deckelman

New York, Nov. 7 – Valeant Pharmaceuticals International Inc. – which ran up a Canada-sized mountain of debt over the past few years as it grew rapidly through a series of acquisitions – has been steadily trying to chop away at those obligations, which totaled almost $31 billion a little more than a year ago.

Most of that debt was still on the Laval, Que.-based drug manufacturer’s books at the end of the 2017 third quarter on Sept. 30.

But company executives said Tuesday that they have made considerable progress in bringing that debt load down to a slightly more manageable $27 billion-plus by the quarter’s end, and they continued to use cash flow generation and asset-sale proceeds even beyond the third quarter’s end, into the current fourth quarter that will wrap up on Dec. 31.

“We are pleased to report that we’ve reduced total debt by approximately $6 billion since the end of the first quarter of 2016,” Valeant’s chairman and chief executive officer, Joseph C. Papa, declared during the company’s conference call following the release of its third-quarter results.

He added that “we have exceeded our commitment to pay down $5 billion of debt from divestiture proceeds and free cash flow by February 2018 – and we’ve delivered on that commitment earlier than we previously had stated.”

Papa told the analysts on the call that since the beginning of 2016, Valeant has announced approximately $3.8 billion in total asset sales – most recently on Tuesday, when it announced its agreement to sell its Sprout Pharmaceuticals unit, a maker of feminine health medications which it bought for $1 billion just two years ago. Papa said that while the company believes that Sprout’s main product, a medication called ADDYI – sometimes called a female version of the libido-enhancing drug Viagra – “may represent an opportunity, women’s health does not fit within our core business portfolio,” which are eye health, gastro-intestinal medications and dermatology products.

Asset sales drive debt improvement

Valeant’s chief financial officer, Paul S. Herendeen, noted on the call that “we continue to make progress reducing the quantum of our debt through cash generated by the business and asset sales.”

One such sale, before the Sprout transaction, Valeant’s sale in September of its iNova Pharmaceuticals, which develops and markets a range of over-the-counter and prescription medicines to Australasia, Asia-Pacific, South Africa, the Americas and other international markets.

Herendeen said that as a result of that transaction, “we ended the quarter with a high cash balance” – nearly $2 billion – with the proceeds from the iNova sale “sitting in cash at quarter close.”

“Subsequent to Sept. 30, we used $923 million of the iNova proceeds to repay senior secured term loans. And last week, we used another $125 million of cash to prepay more senior secured term loans,” he said.

Those further debt payments after the quarter’s end brought the company’s total debt down to some $26.3 billion, which includes the recent iNova transaction and the term loan paydown, the company’s issuance last month of $1 billion of new 5½% senior secured notes due 2025, and the use of the net proceeds from that junk bond deal, plus cash on hand, to repurchase $1 billion of its outstanding 7% senior notes and 6 3/8% senior notes, both due in October of 2020.

Herendeen pointed out that following the term loan paydowns, the company has no mandatory amortization due on its term loans, and its nearest bond maturities, totaling some $4.37 billion, are not due until 2020.

“Managing our debt load requires that we continually look for ways to address our debt stack in 2020 and beyond,” Herendeen continued.

“The good work we’ve completed over the last, say, six quarters has provided us with the time and flexibility to be successful in managing through a challenging situation.”

Working capital progress

The CFO also said that Valeant had generated $490 million of cash from operations in the third quarter, and year to date, has generated more than $1.7 billion.

He cited the “excellent” progress that the company has made in improving its working capital efficiency, reducing its working capital at Sept. 30 by roughly 45 days versus year-ago levels and its inventory by more than 30 days on hand.

He concluded that “working capital efficiency is a high priority for us – and we intend to make additional progress on this front to unlock cash from the balance sheet that we can use to reduce debt.”

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.