Pharmaceutical and biotech company Valeant Pharma VRX slipped down 4.33% to $12.50 intraday Monday due to an announcement of debt restructuring. Negatively impacting EPS, the company announced it paid $1.1 billion in loans after selling their skincare assets to L’Oreal LRLCY.
Valeant is being suffocated under $31 billion of debt and now the company is managing the task of efficiently and effectively maintaining steady cash flow streams in order to pay down the debt.
In the past year, Valeant has been scrutinized for accounting fraud. Pointing fingers at former CFO Howard Schiller, the company’s stock has fallen 80% since March of 2016. The previous accounting scandal and current debt levels are the biggest factors in their struggling stock price. If Valeant can properly manage their debt amounts, the company’s stock, which was once trading at $257 per share, is expected to reasonably recover from its current trading level.
On Monday, Valeant announced they will be refinancing and amending their current credit agreement. With that, the company looks to borrow new Term B loans and issue new debt securities in order to extend any maturity dates before 2022. Additionally, Valeant looks to pay off all Term A loans.
There are positives and negatives to these moves: positively, a small portion of their debt is paid off. Negatively, in a hawkish interest rate environment, pushing off paying billions of dollars in debt may not be what Valeant exactly needs under their debt stress.
The refinancing is expected to close in the first quarter of 2017, if completed.
The market is reacting negatively Monday due to the hit Valeant’s EPS will take from their debt restructuring. David Marris, a pharmaceutical analyst from Well Fargo WFC, stated that Wells Fargo is “still working through how much this will negatively impact consensus EPS, but we believe that it will lower consensus EPS”.
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