Valeant a bitter pill for its creditors

NEW YORK • Valeant Pharmaceuticals International is losing the confidence of its biggest investor base: debt markets that lent the drugmaker more than US$30 billion (S$41 billion) to fund its rapid expansion.

The Canadian drugmaker's shares plunged 49 per cent on Tuesday after it warned it was at risk of a debt default and slashed its earnings forecast. Bonds plunged by the most ever, pushing the yield on its most actively traded securities above 10 per cent for the first time.

On Tuesday, the indignities came fast and furious: a US$600 million typo in a press release; Valeant's top investor, the Sequoia Fund, losing US$1.26 billion on a 51 per cent stock drop; and news that the company does not have its numbers straight enough to to file its earnings reports on time.

Chief executive Michael Pearson, who built Valeant on a stream of acquisitions, told analysts on a conference call that he hoped to start afresh: "We have to earn back the credibility. We have to deliver on results. We have to meet or exceed this guidance. It's a bit of a starting over point for me and this company."

He also unveiled a prediction that adjusted earnings would be about US$5.7 billion this year. The forecast was much lower than the one published in December, which predicted earnings of about US$7 billion.

But creditors are starting to lose faith that Mr Pearson will be able to execute on his promise of rapidly cutting Valeant's debt load.

"Investors have been trying to give them time to work through their issues, but new things keep popping up," said Mr Matthew Duch, a money manager at Calvert Investments. The lower earnings guidance boosts concerns about management's ability to navigate the business through a hard operating environment, said Barclays analyst Shubhomoy Mukherjee.

Valeant spokesman Laurie Little declined to comment.

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A version of this article appeared in the print edition of The Straits Times on March 17, 2016, with the headline 'Valeant a bitter pill for its creditors'. Print Edition | Subscribe