One week ago, we warned that “Valeant Lenders Demand Two Pounds Of Flesh For Covenant Waivers“, a function of Valeant having virtually no leverage.
Well, while Valeant proudly announced it had obtained a covenant waiver from its lenders late last week, it appears not everyone was onboard with the plan, and as a result moments ago Valeant stock crashed (below $30) after hours as major bond investor Centerbridge has notified the company that it intends to call a default event, presumably on annual report delays breaking covenants, and potentially forcing Valeant to repay its bonds early. That could trigger default notices in other pieces of Valeant’s roughly $30 billion in debt, analysts have said, and become a major additional headache, not to mention be a huge cash demand and perhaps force Valeant to sell even more assets, which however its recent agreement with secured lenders prhibits.
It is clear that the creditors are breaking ranks as Centerbridge seeks first mover/hedger advantage (with CDS near record highs) in calling the technical default.
Three weeks ago, the catalyst that pushed Valeant CDS to record wide levels implying a 55% probability of default over 5 years, while sending the company’s stock plunging, was news that Valeant was scrambling to engage its lenders to obtain a default waiver to its bank credit agreement to eliminate a technical default that arose when it didn’t file its 10-K before March 15.
As we reported then, “in anticipation of those meetings, owners of Valeant’s senior bank loans are reaching out to investment banks, including Barclays, who will help mediate the negotiations, the sources said. Barclays did not immediately respond for comment.”
As was explicitly warned, the lenders’ demands include higher interest payments and a pledge to pay a larger amount of the bank loans from the proceeds of any Valeant asset sales.
Since then the stock bounced modestly because apparently the algos forgot that when lenders smell blood and a potential default from a debtor without any other recourse, they will demand a pound of flesh. Or maybe two.
It appears one creditor is moving away from the group, and the result…
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