Quebec-based Valeant Pharmaceuticals International, Inc. is proposing a $1 billion senior secured notes issuance to finance a tender for $1 billion in senior unsecured notes across three tranches maturing in 2020.



  • Quebec-based Valeant Pharmaceuticals International, Inc. is proposing a $1 billion senior secured notes issuance to finance a tender for $1 billion in senior unsecured notes across three tranches maturing in 2020.
  • We are affirming our 'B' corporate credit rating on Valeant and our 'B-' issue-level rating on the company's senior unsecured debt. The '5' recovery rating is unchanged.
  • We are also assigning our 'BB-' issue-level rating and '1' recovery rating to Valeant's proposed senior secured notes.
  • The rating outlook remains stable, reflecting our expectation that Valeant's debt leverage will remain above 7x over the next two years, though the company will continue to generate substantial free cash flow (aided by a low tax rate).

  • The affirmations follow Valeant's announcement that it will issue $1 billion 
    in new eight-year senior secured notes to repay a total of $1 billion in 
    senior unsecured debt from three issues maturing in 2020. Although we view the 
    transaction as a modest credit positive, given the longer pro forma maturity 
    profile, we continue to expect leverage to exceed 7x in 2017 and 2018 and the 
    company to generate over $500 million in discretionary cash flow annually. 
    Moreover, while we view Valeant's substantial scale and revenue diversity 
    favorably, the company faces very high exposure to patent losses over the next 
    two years, and we believe its product pipeline is insufficient to offset 
    revenue and EBITDA declines in the next 12-18 months. This is despite our 
    belief that the company has a very diverse product portfolio, with limited 
    therapeutic concentration and only one drug, Xifaxan, a treatment for 
    irritable bowel syndrome, accounting for more than 10% of revenues.
    
    The stable rating outlook reflects our expectation that Valeant's debt 
    leverage will remain above 7x over the next two years though the company will 
    continue to generate substantial free cash flow (aided by a low tax rate). The 
    outlook hinges on the company's ability to demonstrate a sustainable 
    trajectory of positive growth in profitability, excluding the impact of the 
    significant patent expirations in 2017 and 2018. This would require the 
    company to continue to grow its more successful franchises, including its 
    Bausch & Lomb segment and Xifaxan