Valeant Pharmaceuticals International, Inc. VRX announced that it has received the requisite lender approval for an amendment to its credit facility which is scheduled to close next week. The amendment will result in a reduction in the interest coverage maintenance covenant to 2.0x. It will also provide additional flexibility for asset sales, besides enabling the issuance of secured notes with shorter maturities to repay term loans and other debt.
As a result, Valeant will increase each of the applicable interest rate margins on its credit facility by 0.50% and pay amendment fee of 0.25% of the aggregate principal amount of each consenting lender’s outstanding loans and commitments under the credit facility.
The flexibility will definitely aid Valeant improve its financial condition, given that the company has been reeling under negative publicity due to a number of issues for quite some time now.
In spite of its efforts, shares of the company took a beating when news surfaced that mutual fund investor T. Rowe Price Group Inc. TROW has filed a lawsuit against Valeant over fraudulent scheme.
Per a Reuters report, T. Rowe Price alleged that Valeant had used a secret pharmacy network, deceptive pricing and reimbursement practices, and fictitious accounting to protect its branded drugs from generic competition and to artificially inflate revenues and profits.
We remind investors that Valeant’s relationship with Philidor Rx Services, a specialty pharmaceutical company providing back-end services, had come under the scanner in Oct 2015 after it was alleged that the latter was urging pharmacy benefit managers to opt for expensive drugs over their cheaper generics. Thereafter, Valeant had to terminate its contract with Philidor.
The latest lawsuit could well indicate further discrepancies on part of Valeant.
Note that Valeant has been under the spotlight since Aug 2015 for all the wrong reasons like a price hike of specialty drugs, erroneous financial reporting, and termination of contracts with Philidor Rx Services. However, at each step, the going just gets tougher for the company.
Valeant currently carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the health care sector are Pacira Pharmaceuticals, Inc. PCRX and Corcept Therapeutics Incorporated CORT. Both the stocks sport a Zacks Rank #1 (Strong Buy).
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