Valeant CDS Hits Record High As Company Scrambles To Avoid Default

While everyone knows about failed rollup Valeant’s equity troubles, which have sent its stock crashing to 5 year lows after the biggest one day drop in history earlier this week, a just as interesting development is taking place with its debt, which incidentally at $31 billion (and accumulated during the company’s relentless acquisition spree over the past few years) is nearly three times greater than the company’s equity capitalization, and is the locus of the biggest problem facing the company currently.
Recall that recently Valeant announced it would be unable to file its 10-K on time, which put the company in violation of its covenants since Wednesday, and also meant it is now in danger of defaulting on its $30 billion debt load. As a result, Reuters reports that the company’s lenders are “beginning to demand new terms that could further pressure the drugmaker’s business model, according to three people familiar with the matter.”
As Reuters adds, “the risk of default has offered creditors an opportunity to attempt to renegotiate core elements of their agreements with Valeant, potentially saddling the company with higher costs of debt and more restrictions on how it deploys capital, according to people familiar with the matter.”
Suddenly, what was until incomprehensible – a Valeant default – appears all too likely: under its loan agreements, Valeant has until March 30 to file audited financial reports. If it fails to do so, it then has 30 days before lenders can demand accelerated repayment. Needless to say, Valeant would be unable to fund such a loan acceleration without rapidly selling off key assets in a liquidation firesale, although there even exist limits on just how many assets Valeant can sell.
Reuters adds that Valeant said it would meet with banks next week and ask them for an extension on the deadline. On Tuesday, Chief Executive Michael Pearson said that his best estimate for filing the annual report was April, but that he could not guarantee it.
In anticipation of those meetings, owners of Valeant’s senior bank loans are reaching out to investment banks, including Barclays, who will help mediate the negotiations, the sources said. Barclays did not immediately respond for comment.

This post was published at Zero Hedge on 03/17/2016.