Valeant bonds move up slightly on board changes

New York: Drugmaker Valeant's Monday announcement of changes to its board helped to slightly push up its bond prices but investors remain cautious about the company and its prospects.

Valeant's dollar bonds were quoted 1-2 points higher on Monday, after the company said chief executive Michael Pearson would be stepping down and activist investor William Ackman would join the board.

Valeant's 5.875% 2023s - one of its most liquid notes - traded at 77.75 to yield 10.357% early Monday, according to MarketAxess data, which was only slightly above their all-time low of 76.25 reached last week.

The announcement was welcomed by investors who said it may help address concerns about Valeant's accounting practices and opaque relationship with a specialty pharmacy, that led to a sharp slide in its shares and bonds in recent months.

But the small gains on the bonds, they said, showed sentiment was still cautious about the credit that is part of a sector under public scrutiny for thriving on a business model of acquiring undervalued drugs and then increasing prices sharply.

Some investors are alarmed by the company's admission that its recent accounting issues have been attributed to "improper conduct" by top finance executives, including former chief financial officer Howard Schiller, who has refused to resign from his post on the board of directors.

A board committee said its five-month investigation into Valeant's dealings with pharmacy Philidor Rx Services found broad accounting problems dating back to December 2014. The committee's work is ongoing and more restatements may be needed, Valeant said.

"Bondholders wanted (Pearson) to step down, so that was definitely a positive," said one US high-yield portfolio manager. "The only worry is what else will shake out in the earnings report."

The company said it now expects to file its annual report on or by April 29.

Valeant's failure to file its annual report on time put it in breach of covenants with lenders last week, raising the possibility of the company defaulting on a portion of its US$30bn debt load.

MIXED OUTLOOK

For now the market remains mixed on its outlook for the credit.

"I expect that any relief rally, on the CEO's replacement and Ackman's seat on the Board, will be short-lived," said Steven Azarbad, chief investment officer of hedge fund Maglan Capital, who is currently not invested in Valeant.

"The situation has been fundamentally rocked because the company's rollup strategy is no longer considered valuable," said Azarbad.

Morningstar analysts said that despite the management attempt to regain credibility, Valeant remained in a highly volatile and uncertain situation.

Analysts at Citigroup, however, reiterated their "buy" recommendation on all of Valeant's bonds and loans with maturities of 2022 or shorter.

"We remain mindful that changes could still be a couple of quarters away and that this is still Mr Pearson's ship," the analysts wrote in a report on Monday.

"Still, we think with today's announcements that the difficult decisions have been made and some of the biggest questions have been answered."