Valeant Pharmaceuticals International Inc. shares surged in morning trade Tuesday after the company reported second-quarter earnings.
Though the company
reported a loss and cut its 2017 revenue guidance, the quarter’s bright spots included a revenue beat and strong organic growth for Valeant’s Bausch + Lomb international segment and Salix business.
Valeant’s debt, meanwhile, has deferred its place in the spotlight until 2020.
The company says it expects to exceed a goal, announced last year, of paying down more than $5 billion of debt by February 2018.
Valeant, which is still trying to rebound from a series of accounting and drug pricing scandals in 2015, will do this using proceeds from divestitures — including Dendreon, iNova Pharmaceuticals and its Obagi Medical Products Business — and cash on hand, the company said on its earnings call.
Read: Valeant stock surges 7.9% after Q2 loss, 2017 revenue guidance cut
By Aug. 15, “we will have reduced total debt by $4.8 billion since the first quarter of 2016, and we will have no significant debt maturities and no mandatory amortization requirements until 2020,” said Chief Executive Joseph Papa. “I’m encouraged by the financial flexibility this affords us going forward.”
A Valeant chart of long-term debt, though, shows that the company is poised to face down $27.465 billion in debt starting in 2020 and going past 2024. Of that, more than $5 billion alone comes from debt maturities in 2020.
That, Valeant says, gives it a reprieve: “we have time to develop and execute plans to address our debt stacks in 2020, 2021 and beyond.”
The plan will be some combination of cash flow the business generates, using senior secured leverage as it’s available for 2020 and 2021 bonds, possible proceeds from new asset sales and possibly raising equity or reissuing equity-linked securities, Chief Financial Officer Paul Herendeen on the company’s earnings call, according to the FactSet transcript.
See more: Valeant is meeting its debt goals, but core business is still struggling
“Obviously, it is our preference to use cash flow, senior secured leverage and proceeds from the sale of noncore assets as a means of reducing that debt stack in 2020,” Herendeen said.
But there are some obstacles, he noted, considering that “our company carries more debt than it should based on the assets that we presently manage,” which can best be targeted by generating cash flow and growing adjusted EBITDA.
Related: Valeant redeems $500 million of debt, on track to meet or exceed $5 billion debt reduction goal
Part of that is growing Valeant’s Bausch + Lomb and Salix businesses, which the company did this quarter, Papa said.
The company’s dermatologic business, which contributed to a decrease in total revenue in the second-quarter relative to the year-earlier period, is more challenged, Papa said.
Debt “is an issue. The good news is we brought it down from $32-plus-billion to — that will be somewhere in that $27 billion, after we make these additional payments. So we think that’s an important part of what is critical for us in the future,” Papa said.
Valeant shares declined 1.6% in morning trade Wednesday. Company shares have surged 29.8% over the last three months and declined 44.5% over the last 12 months. S&P 500
shares have surged 3.3% over the last three months and gained 14.4% over the last 12 months.
This story was originally published on August 8.
View more information: https://www.marketwatch.com/story/valeant-is-on-track-to-reduce-about-5-billion-of-debt-but-it-has-more-than-27-billion-to-go-2017-08-08