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Valeant Pharmaceuticals International Inc shatters creditor calm as debt casts bigger shadow

Creditors are starting to lose faith that chief executive Michael Pearson will be able to execute on his promise of rapidly cutting Valeant's debt load.

Valeant Pharmaceuticals International Inc. is losing the boldness of their biggest investor base: debt markets that lent the drugmaker more than US$30 billion to fund its rapid expansion.

Burned again in latest meltdown, investor faith in former market darling Valeant falters

Richard Drew/AP Photo

Confidence is increasingly hard to come by for many shareholders which have been burned by the company, that was briefly probably the most valuable firm in Canada this past year.

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The company’s bonds plunged Tuesday by the most ever, pushing the yield on its most actively traded securities above 10 per cent for the first time after it slashed its forecast for that year and warned that it may breach debt agreements. Credit analysts at Barclays PLC lowered their outlook on the debt, and Moody’s Investors Service cut its credit score around the company deeper into junk.

Creditors are beginning to get rid of faith that leader Michael Pearson will be able to execute on his promise of rapidly cutting Valeant’s debt load. A delay in filing its annual report with regulators is also complicating the company’s standing in debt markets. Neglecting to file its so-called 10-K before Wednesday will trigger a technical default under its credit agreement, restricting it by using its credit line, the company said.

“Investors have been attempting to give them time to sort out their issues, but new things keep appearing,” said Matthew Duch, a money manager at Calvert Investments in Bethesda, Md., which oversees more than US$13 billion in assets. Duch said he’d hoped to purchase Valeant bonds at a discount but decided against it after the earnings call.

The company’s bonds fell even while Pearson reiterated with an investor call that Valeant pays down its debt as quickly as it may.

Valeant spokeswoman Laurie Little declined to comment.

Valeant’s longest-dated bonds, US$3.25 billion of 6.125 percent notes maturing in 2025, dropped US1.75 cents on the dollar Wednesday to US74.625 cents after losing more than US10 cents yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the lowest level since they were issued at par last year. Your debt was the most actively traded corporate security tracked by Trace .

“You need to be a trader, not a gambler,” Duch said. “This could be a sign of capitulation.”

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