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Valeant Selling $2.25 Billion in Bonds to Finance Acquisitions

Valeant Pharmaceuticals International Inc. is raising $2.25 billion in a two-part bond offering to help finance its takeover of skin-care maker Medicis Pharmaceutical Corp.

Canada’s largest publicly traded drugmaker intends to sell $1.75 billion of senior unsecured notes to fund the Medicis deal and $500 million of bonds for general corporate purposes including potential acquisitions, the Montreal-based company said yesterday in a press release. Both portions will mature in eight years and may yield 6.375 percent, according to a person familiar with the offering who asked not to be identified because terms aren’t set.

While the $2.6 billion Medicis takeover is strategically “a terrific acquisition” for Valeant, the increased leverage and appetite for more deals hurts the company’s credit profile, according to Morningstar Inc. The added debt may boost Valeant’s ratio of total debt to earnings before interest, taxes, depreciation and amortization to 6.7 times this year, Mark McCabe of KDP Investment Advisors Inc. wrote today in a report. That compares with 5.7 times as of June 30.

“We don’t believe deleveraging will be a major priority,” Chicago-based Morningstar said a report yesterday that downgraded Valeant one level to BB.

Valeant, ranked three levels below investment grade at Ba3 by Moody’s Investors Service and a level higher at BB by Standard & Poor’s, is offering the notes as yields on junk debt dropped to the lowest ever. Average yields on U.S. speculative-grade corporate bonds fell to an unprecedented 6.95 percent yesterday, according to Bank of American Merrill Lynch index data. The gauge was 8.54 percent at year-end.

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