Valeant Bond Investor Seeks Default

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The headquarters of Valeant in Laval, Quebec. ENLARGE
The headquarters of Valeant in Laval, Quebec. Photo: Reuters

A large holder of Valeant Pharmaceuticals International Inc. VRX 2.04 % ’s bonds called a default as a result of the Canadian drugmaker’s failure to file its annual report earlier this year, adding to the litany of woes it faces.

Centerbridge Partners LP, a $25 billion private-equity and distressed debt investor, recently sent Valeant a notice of default, people familiar with the situation said. Valeant confirmed the request but didn’t identify the debt holder.

Valeant reiterated on Tuesday that it remains on schedule to file the report by April 29, which would enable it to avoid a default. It was due earlier this year.

The notice shows how Valeant holders are jockeying for position amid turmoil at the company. Valeant shares are down about 88% from an August high following a backlash against its pricing of drugs, a reduced earnings outlook and a financial restatement that delayed the annual report.

In an effort to regain investor confidence, the company has brought on new board members and is in the process of replacing its chief executive, Michael Pearson.

Valeant’s debt, split between about $12 billion in bank loans and about $19 billion in bonds, is a potential weakness given the dimmer financial outlook. Valeant has said it remains well-positioned to meet its obligations.

More on Valeant

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  • Valeant Starts CEO Search, Alleges Improper Financial Conduct
  • Valeant Provides More Restatement Details
  • Valeant Drama: The Short Answer
  • Valeant Could Have Trouble Getting Clean Opinion From Auditor
  • Big Hedge Fund Booster Got Out Just in Time

New York-based Centerbridge owns about $250 million face value of Valeant’s $1 billion bond issue due 2023, some of the people said. Under Valeant debt covenants, holders of 25% of any single issuance of bonds under certain circumstances, such as untimely financial statements, can call a default.

The Valeant bonds in question fell to 76 cents on the dollar in mid-March, but have since rebounded, recently trading at 82 cents, according to data provider MarketAxess.

Valeant shares declined 3.6% in after-hours trading after gaining 63 cents to $31.98 in 4 p.m. trading on Tuesday. News of the default notice was first reported by The Wall Street Journal after the market close.

William Ackman, a Valeant board member and one of the company’s biggest shareholders, spoke with Centerbridge co-founder Jeff Aronson last weekend about the matter, some of the people familiar with the matter said.

Creditors often use the threat of a default to win concessions from borrowers and to protect their interests in event of a broader restructuring, rather than to force immediate repayment.

Valeant last week struck an agreement with holders of its bank loans, agreeing to pay a one-time fee and to raise the interest rates by 1 percentage point. In exchange, the creditors agreed to looser financial conditions and gave the company until late May to file its annual report. Valeant also must earmark most of the proceeds from any future asset sales for prepayment of its bank loans.

Centerbridge waited until the company had struck that bank-loan agreement before signaling its intention to call a default so as not to complicate Valeant’s negotiations with lenders, people familiar with the matter said.

The deal with lenders was one of several recent positive developments for Valeant. The company last week said it had completed an internal investigation of its relationship with a mail-order pharmacy and hadn’t found problems that would require further earnings restatements beyond $58 million in improperly booked revenues that it disclosed earlier this year.

Mr. Ackman also signaled the company is close to naming a replacement for Mr. Pearson, saying he was “cautiously optimistic” a successor would be named in “a matter of weeks, not months.”

Centerbridge was launched in 2005 by Mr. Aronson, a former distressed-debt investor at Angelo, Gordon & Co., and Mark Gallogly, who once headed the private-equity business at Blackstone Group BX 2.41 % LP. It manages private-equity and credit assets on behalf of pensions and other institutions.

Liz Hoffman at liz.hoffman@wsj.com and Matt Jarzemsky at matthew.jarzemsky@wsj.com



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