Valeant's (VRX) Amended Credit Agreement Seen as Positive - Morgan Stanley
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Morgan Stanley maintained an Overweight rating on Valeant Pharmaceuticals (NYSE: VRX) with a price target of $42. Earlier the company announced that it has obtained the requisite lender approval for an amendment to its credit facility. Analyst David Risinger sees the news as a positive.
"In-line with our expectations, VRX amended its credit agreement and reduced the interest coverage ratio on its loans from 2.75x to 2.00x. The add'l 50bps of interest is immaterial, in our view. Net-net, we see the amendment as a positive that should lessen risk of further financial stress," said Risinger.
"The amendment only applies to Valeant's credit facility, which is mainly comprised of the company's term loans and revolver (i.e., bank debt, or secured debt). As of the latest quarter, Valeant had ~$12B of secured debt on its balance sheet, plus an additional ~$19B in senior notes (i.e., bonds). To lower the credit facility's interest coverage maintenance covenant from 2.75x to 2.00x, Valeant will pay an additional 50bps in interest on its secured debt (~$60M in additional interest), plus a one-time fee of 25bps on the aggregate principal (~$30M). The additional $60M of interest expense equates to a manageable $0.15/share, assuming a 15% non-GAAP tax rate and no change in current capital structure," added the analyst.
Shares of Valeant Pharmaceuticals closed at $30.00 yesterday.
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