Iceberg Ahoy

Valeant Rearranges Deck Chairs

Refinancing merely delays the inevitable debt reckoning.
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Delaying the inevitable always feels good in the moment. But it's a short-lived high.  

Valeant Pharmaceuticals International Inc. late Tuesday announced it had completed a multi-billion-dollar orchestra of can-kicking, with a series of refinancing transactions to ease its near-term debt burden. 

It's a fine piece of financial wizardry, delaying the company's day of reckoning with its $30 billion debt load. But that reckoning isn't going away. These contortions are only necessary because the company has little realistic chance of growth, or of permanently paying down that debt, any time soon. 

Valeant issued new debt due in 2022 and 2024 and took out new term loans, the proceeds of which will go toward reducing debt maturing in the next few years.

Valeant has also convinced lenders to loosen covenants requiring it maintain a certain ratio of Ebitda to interest payments. That should help resolve for now one of Valeant's most consistently irritating issues, the fact that its declining business has left it constantly on the edge of violating those terms. 

These debt moves legitimately make Valeant more stable in the short run. But they were only needed because the company's growth prospects are too poor, and offers to buy its assets too scant, to leave any other option. The fact that long-time booster Bill Ackman took a multi-billion dollar loss rather than sticking around to see how the financial wizardry worked out doesn't build confidence on either front. 

Valeant expects its sales to decline 6 to 8 percent in 2017, on top of a 2016 drop of 7 percent. The company targeted $8 billion in asset sales last year to deal with the debt burden that still looms in 2020. It has managed a bit more than $2 billion in sales so far.

If more asset sales don't materialize, then Valeant's sluggish cash flows will be the only thing chipping at its debts. That will continue to restrict its ability to invest and compensate for the ever-eroding value of its assets, as will any concessions made to lenders to get this reprieve.

And there's a very real possibility that what little cash Valeant has will be sucked up by settlements or fines related to its impressive (in the bad way) roster of legal troubles. 

Rearranging deck chairs on the Titanic is just as useless when the iceberg is a bit farther off.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Max Nisen in New York at

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