Valeant Bonds May Be a Buy After Avoiding Default, JPMorgan Says

  • ‘A lot of free cash flow’ eases debt burden: Bob Michele
  • Drugmaker filed delayed quarterly report after near-default

Valeant Pharmaceuticals International Inc.’s bonds could be a bright spot for investors despite the drugmaker’s plunging equity, according to Bob Michele at JPMorgan Chase & Co.

“They’re doing all the things that we like to see as a debt investor,” Michele, JPMorgan Asset Management’s chief investment officer and head of the global fixed-income, currency and commodities group, said in a television interview on Bloomberg <GO> Wednesday. "They have a lot of free cash flow."

The company, whose debt has ballooned to $32 billion, is focused on easing that burden, making it an attractive opportunity for bond investors, according to Michele. Valeant expects to have $1.7 billion of cash flow available to service debt in 2016, it said in a presentation Tuesday. The company also has $1.7 billion in cash interest expenses in 2016.

Valeant filed its long-delayed quarterly report with U.S. regulators Tuesday after market close, avoiding the nearest risk of default on its loans and beating a self-imposed deadline. The Bridgewater, New Jersey-based pharmaceutical company had failed to file the report for months, and creditors sent the company notices of default because of the breach.

Road Forks

“This is where we’ve come to the fork in the road for the company,” Michele said. “Here’s a chance to buy an industrial company at 9 percent, and take a view on how it will move forward with its capital structure.”

Valeant’s most actively traded bond, $3.25 billion of 6.125 percent notes that mature in 2025, rose 50 cents to trade at 82.50 cents on the dollar and yield 9.04 percent at 1:08 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The company’s shares dropped about 3 percent in New York, extending the year’s decline to 76 percent.

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