NEW YORK, Aug 18 (Reuters) - Valeant Pharmaceuticals International lenders agreed to an amendment to loosen the company’s covenants on its $31 billion of debt, according to a news release Thursday.
Investors in Valeant’s loans agreed to the changes in exchange for a higher interest rate and a fee. The company obtained another amendment earlier this year to help stave off default, allowing it additional time to file its financial statements.
Lenders agreed to loosen the company’s interest coverage covenant, a requirement that it meet a set ratio of Ebitda compared to interest expenses, according to the release. The amendment cut the ratio to 2.0 times. It was set at 2.75 times through March 31, 2017 and then would step up to 3.0 times, according to an August 9 regulatory filing.
Valeant was also given additional flexibility to sell assets, according to the release. The company’s credit agreement had previously allowed it to sell up to 4% of its total assets per year.
The company said it repaid $1.29 billion of debt in 2016, according to an August 9 earnings presentation. It said it expects free cash flow and non-core asset sales to cut debt by more than $5 billion over 18 months.
In addition, the amendment will allow Valeant to issue secured notes with shorter maturities to repay term loans and permit the incurrence of other debt to repay term loans, according to the release.
The company is in compliance with its covenants, Joe Papa, Valeant’s chief executive officer, said during an August 9 earnings call.
In return for the amendment, Valeant said it will increase the interest rate it pays lenders by 50bp, according to the news release. It will also pay a 25bp amendment fee. [ID: nL3N1AR157]
“We are pleased to have the support of our lenders and appreciate their confidence in the company’s future,” Papa said in the news release. “The amendment provides us with additional flexibility and allows us to focus on executing our strategic plan, developing our pipeline and improving patients’ lives.”
The company says it expects to close the amendment next week, according to the release.
A spokesperson for Barclays, the bank arranging the amendment, declined to comment. A Valeant spokesperson did not immediately respond to an e-mailed request for comment.
The company said in the earnings presentation that the “New Valeant” plans a 2017 and 2018 turnaround that will focus on strengthening its balance sheet and focusing on markets with above-average growth rates.
This is the second amendment Valeant has requested in six months. In March, it asked loan lenders to waive a default and amend its credit agreement to give it more time to file its financials, according to a March 30 news release. It also asked lenders to loosen its interest coverage covenant.
In exchange for that amendment, Valeant increased the interest rate paid to loan lenders by 1%, paid a 50bp amendment fee and agreed to use all asset sale proceeds to pay down debt, according to an April 11 regulatory filing. (Reporting by Kristen Haunss; Editing By Jon Methven)
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