Further downgrade to Valeant ratings reportedly could trigger forced selling
- Further cuts to Valeant's corporate credit rating could trigger forced selling by investors who can't hold debt rated lower than "B," according to Citigroup credit analysts cited by Bloomberg.
- After Valeant received a default notice from a large bondholder, ratings agency Standard & Poor's downgraded the company's rating by one notch, from "B+" to "B."
- S&P said it could downgrade Valeant again if the company does not file its much-delayed Form 10-K with the SEC. The company, however, has pledged to submit its statements on or before April 29, ahead of the new deadlines it has renegotiated with creditors.
Earlier this week, the private equity firm Centerbridge Partners sent Valeant a notice of default due to the company's delayed financial statements. This started a 60-day clock, or until June 11, for the drugmaker to submit its Form 10-K. After June 11, Valeant's bondholders could demand immediate repayment.
The notice came one week after Valeant negotiated a one-month extension on the April 29 filing deadline tied to its separate credit facility. In order to win the reprieve, Valeant was forced to increase the interest rate it pays on its loans by 1% and pay a percentage-based fee to each lender which agreed to the extension.
While the extension gave Valeant more breathing room, the downgrade by S&P only adds to the pressure for the company to file expeditiously.
At the same time, outgoing CEO Mike Pearson has to appear before the Senate Aging Committee on April 18 to give a deposition related to the Congressional investigation into drug pricing. He declined to appear at an earlier scheduled meeting, prompting the committee to threaten holding him in contempt. Pressure from Valeant's board seems to have led Pearson to reconsider and appear.
The Aging Committee will also hold a hearing on April 27 to hear testimony from Pearson.
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