The enormous debt on Valeant Pharmaceuticals’ (TSX: VRX) balance sheet is keeping a lid on the rallies ahead. Shareholders should expect nothing more: the company is unwinding its complex business, selling off assets, and managing the debt maturities. This will all pay off so long as cash flow grows and debt falls.
Valeant, on October 3, issued a $1-billion debt offering that lower the total upcoming maturities.
Valeant priced its $1-billion principal amount of 5.5% senior notes due in 2025. It will use the proceeds to roll over existing debt. The issuance is not trivial: the lower interest will save the company money while simultaneously pushing out the maturity date.
The low interest rate offered suggests the market has a healthy appetite for Valeant’s debt, so the fear of any bankruptcy is now off the table. Valeant now has around $26 billion in debt and $24 billion net of cash. In June, the company’s net debt was $26.7 billion. The sale of Dendreon raised $811 million, while iNova brought in $923 million. The net effect is that Valeant will have $3.9 billion maturing in 2020.
Assuming Valeant generates $1 billion in free cash flow, the company’s interest on debt in 2020 are covered. It sets the stage for refinancing for the debt due in 2021 and beyond.
