Valeant Pharmaceuticals International plans to sell a US$2.5bn junk bond on Thursday to refinance debt, according to a source familiar with the situation.
The bond would be the Canadian company’s first in two years, and the first since a 2015 scandal over pricing practices and its previously undisclosed relationship with a specialty pharmacy.
The new secured bond will be senior to Valeant’s existing notes and be split across tenors of five and seven years, the source said.
Two buyside sources told IFR that price discussions were around yields of 6.5% area and 7% area respectively, likely much less than what they would have to pay with an unsecured deal.
“They are attempting to term-out debt and use the more affordable option,” one of the sources said. “Senior unsecured would be pretty expensive for these guys.”
The company would likely have to offer a yield in the high 9%s - or even more - to sell unsecured debt with a five-year maturity, the source said.
NIP AND TUCK
Valeant is trying to reduce the billions of debt it has raised over the years to finance an aggressive acquisition strategy.
The company is also selling a US$3.06bn incremental term loan as part of a larger refinancing deal. The new debt will enable the company to push out its maturities, with the proceeds used to replace term loans maturing before 2022 and to repay up to US$600m of its 6.75% 2018 notes. nL2N1GJ1F8
According to some, the most contentious part of the plan is Valeant’s proposal to loosen certain loan covenants to allow it to issue more secured debt in the future.
Existing secured creditors and holders of long-dated bonds in particular are unlikely to look upon those changes favorably, one investor told IFR.
“The big issue with this deal is … will the term loan holders allow covenants to be loosened?,” the investor said.
“Shorter unsecured bonds have a way to get refinanced (if the company can issue more secured debt), but long unsecured bonds will see potential recovery in a bankruptcy lowered because there is now more debt ahead of them.”
Valeant this week said it had used proceeds from the sale of some skincare brands to pay down US$1.1bn of its senior secured term loans.
The company was last in the market in March 2015, when it raised US$10.1bn-equivalent - the biggest junk bond ever - to finance its acquisition of drugmaker Salix Pharmaceuticals.
