• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Healthcare

Valeant 'Up Against the Wall,' Must Sell Assets, Analysts Say

The troubled Canadian drugmaker is under increased pressure to sell assets, and quickly. 
By JAMES PASSERI Jun 16, 2016 | 12:48 PM EDT
Stocks quotes in this article: VRX, WBA

Valeant Pharmaceuticals' (VRX) increasingly precarious $31 billion debt stack is leaving the troubled Canadian drugmaker with few exit strategies other than to sell assets, and quickly, analysts say.

After slashing earnings guidance for 2016 in an earnings call this month with analysts, for the second time this year, analysts are growing concerned Valeant could breach covenants on its $1.6 billion bonds coming due in 2018.

"Our viewpoint is, based on the current financial guidance, they are up against the wall if they come in below the low range of adjusted EBITDA," Dr. Raghuram Selvaraju, an analyst with Rodman & Renshaw, said in a Thursday phone interview with Real Money. (EBITDA is a standard valuation metric that stands for earnings before interest, taxes, depreciation and amortization.)

In April, creditors of the 2018 tranche, after negotiating a fee, relaxed Valeant's obligations to maintain an interest-coverage rate of 2.75x from 3x to avoid technical default. The covenant is governed by a ratio of Valeant's trailing 12-month EBITDA over its interest expenses over the period.

But, according to Selvaraju, Valeant's slashed EBITDA forecast for the rest of the year of $4.8 billion to $4.95 billion, down from previous guidance of $5.6 billion to $5.8 billion, is adding pressure to sell assets, especially as revised EBITDA figures already assume some asset sales, he added.

"Based on the forward guidance, they are very close to breaching those covenants," he said. "Some assets are underperforming, and they should be gotten rid of now while Valeant can still get a decent price for them."

Earlier this month, Valeant also reduced its 2016 revenue to $9.9 billion to $10.1 billion from $11 billion to $11.2 billion, largely citing problems with its dermatology business, which has been exacerbated by Valeant's recent partnership with Walgreens (WBA), in which low prices at the retailer have often been clocking in below Valeant's costs. (Walgreens is in Jim Cramer's Action Alerts PLUS charitable trust.)

The other central problems in Valeant's business have been a dirsruption in the salesforce of its Salix business, as well as lower sales expectations from Nitropress and Isuprel, "which will suffer from pricing pressures," according to CIBC analyst Prakash Gowd.

Gowd reduced his price target on Valeant stock to $16 from $24 earlier this month, citing mispriced prescriptions from Walgreens outlets, as well as expected hikes to Valeant's debt-EBITDA and interest-coverage ratio. CBIC forecasts Valeant will end 2016 with a debt-EBITDA rate of 6.1x, undercutting Valeant's target of staying belox 6x, and will need to pay down about $1.75 billion in debt this year, and another $2.25 billion next year.

"We still believe Valeant will need to sell off assets in order to pay down debt," Gowd said in a recent report, primarily because of the decline of the drugmaker's EBITDA, which is the chief ingredient in driving much-needed free cash flow.

Meanwhile, Real Money's Cramer aslo said in a Tuesday CNBC appearance that Valeant is under increasing pressure to sell the businesses so it can to shore up cash because of its "precarious debt position" and "competition ready to tear them apart." 

"They're kind of stuck with this bizarre agglomeration of businesses without any growth," Cramer added.

Shares of Valeant are down more than 90% from their highs last summer, following SEC and congressional probes into its revenue bookkeeping tied to a former partnership with mail-order pharmacy Philidor, and allegations of hiking prices to exorbitant levels. 

Valeant shares were down 5% in midday trading Thursday.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Employees of TheStreet are restricted from trading individual securities.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long WBA.

TAGS: Investing | U.S. Equity | Healthcare

More from Healthcare

Walgreens Boots Alliance Is Likely to Weaken Further

Bruce Kamich
Mar 5, 2021 12:44 PM EST

Let's check out the charts and indicators.

Emergent BioSolutions Turns Bearish, So Beware

Bruce Kamich
Mar 4, 2021 8:27 AM EST

A break in a key support level could precipitate further declines in the life sciences company's shares.

Centene Charts Remain Weak and Vulnerable

Bruce Kamich
Mar 3, 2021 1:35 PM EST

Let's review the charts and indicators.

Stopped Out on Johnson & Johnson but Willing to Buy it Lower

Bruce Kamich
Mar 3, 2021 12:20 PM EST

Stand aside for now.

Broad Rally, Vaccine Optimism, Johnson & Johnson, GameStop Roars, Trading Nvidia

Stephen Guilfoyle
Feb 25, 2021 7:04 AM EST

The market's catalyst had everything to do with the virus... optimism that humankind might stuff that scourge back into Pandora's box.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:38 AM EST GARY BERMAN

    The INDU and DIA

    FIBOCALL: The INDU index and the DIA The INDU ...
  • 10:44 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "The Challenge of Short-Selling"
  • 08:40 AM EST PAUL PRICE

    Recent Pick SpartanNash (SPTN) Raised Its Quarterly Payout by 3.9%

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login