Photographer: Michael Nagle/Bloomberg

Valeant Creditors Resist Proposal to Relax Lending Pact

Valeant Pharmaceuticals International Inc. is facing push back from some of its lenders as it seeks to waive a default and loosen restrictions on its debt, according to people with knowledge of the matter.

The resistance may complicate Valeant’s efforts to win the support it needs before the Wednesday deadline for lenders to respond. The company, which has about $32 billion in total debt, must gain approval from more than half of the investors holding its more than $11 billion of secured loans. Those that are balking are demanding a higher interest rate and a better fee, said the people, who asked not to be identified because the discussions are private. They also want to impose some restrictions on the terms the company is offering on the proposal, they said.

A spokeswoman for Valeant didn’t immediately respond to a request for comment, while a spokesman for Barclays Plc, which is mediating the loan amendment process for the company, declined to comment.

Amendment Fee

Valeant began seeking an amendment and waiver to its bank credit agreement last week to eliminate a technical default that arose when it didn’t file its 10-K before March 15. The company is offering creditors a 50 basis-point fee and a 0.5 percentage point boost on the interest it pays on its term loans, people with knowledge of the matter said at the time. Negotiations are ongoing and demands could change.

"Some lenders might see it as an opportunity to extract better pricing or other terms," Justin Forlenza, an analyst at independent credit-research firm Covenant Review, said in an interview. "They can meet at a certain point that lenders and the company can get comfortable with."

Under the current proposal, the drug maker is also seeking to loosen restrictions on its credit pact that govern a measure of earnings the company needs to maintain relative to its annual interest expense, Valeant said in a statement on March 30.

The interest-coverage ratio was set to jump to three times from 2.25 times, with that level set to be tested before the end of June, according to its current agreement with lenders.

Asking lenders to relax loan covenants suggests Valeant may not be able to repay debt as quickly or generate projected earnings, according to Bloomberg Intelligence analyst Elizabeth Krutoholow.

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