How Valeant Gave Itself Extra Time to File Delayed Financials

  • Drugmaker breached bond pact last week, Covenant Review says
  • Company says it had until May 16 to file financial report

A debt-research firm says Valeant Pharmaceuticals International Inc. has been budgeting more time than it’s actually had to file its financial statements.

Covenant Review’s interpretation of indentures governing $19.5 billion of bonds is that, by delaying its first-quarter financial report, Valeant violated its pact with bondholders a week earlier than it said it would. In other words, when the struggling drug maker told investors last month that it needed to file the report by May 16, the deadline was actually May 10, the research firm says.

That means bondholders, in theory, could’ve started the process of demanding early repayment a week earlier than the company said. Valeant says it’s been transparent and creditors are free to make their own decisions on whether to send a default notice.

“I think they’re taking a broader approach to the language in the reports covenant,” said Anthony Canale, an analyst at New York-based Covenant Review, an independent research firm that analyzes credit agreements.

Creditors can demand their money back as early as 60 days after the company has failed to live up to the terms of its agreements, according to Valeant’s 2015 annual report. Bondholders can’t send a default notice to start the clock on those 60 days until a covenant is breached.

“The company has been transparent about the timing of its Form 10-K, filed on April 29, 2016, as well as the upcoming Form 10-Q, which it expects to file on or before June 10, 2016,” said Laurie Little, a Valeant spokeswoman. “Bondholders, advised by their counsel, make their own judgments as to if and when to file a notice of default related to any company’s delayed filing.”

Judith Burns, a spokeswoman for the SEC, declined to comment.

In its pact with bondholders, Valeant agreed to file quarterly and annual reports “within the time periods specified” in the U.S. Securities Exchange Commission’s rules and regulations. For the Laval, Quebec-based company, that means the first-quarter report was supposed to be in by May 10, or within 40 days of quarter-end.

Covenant Review says Valeant may have been assuming a later deadline because of an extra window that the SEC grants in some cases. Companies that don’t anticipate filing their quarterly results on time can make use of a five-day extension. But to qualify, the company has to state it will file the financials within that window, and then actually do it, according to Covenant Review.

Valeant disclosed in a May 10 filing that it wouldn’t be able to submit its first-quarter report on time “without unreasonable effort or expense” because it was focused on restating prior financial statements going back to 2014.

Using the extension doesn’t change the date of a company’s reporting deadline. Instead, if the report is actually filed during the extension period, it is deemed to have been filed on the original deadline.

Valeant didn’t file within the five-day window. The company has said it expects to submit its regulatory filing by June 10.

This isn’t the first time Valeant’s disclosure has sparked debate. Canale said the company was in a similar position in March when it couldn’t get its annual report in on time. The company said it would violate its requirements under its bond indentures if it didn’t file by March 15. Under SEC rules, its deadline was Feb. 29, although the company could’ve filed within 15 days for the regulator to consider it timely.

“My take was the breach happened on Feb. 29 because they weren’t able to use the SEC grace period,” Canale said.

The company ultimately filed the 10-K on April 29, which was early enough to avoid acceleration. But by that day, Valeant had been in violation of creditor agreements for 60 days. Had enough bondholders sent the drugmaker a notice of default on March 1, it would’ve needed to cure the default by May 2 -- within 60 days of the notice -- or immediately pay investors back.

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