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Could Valeant Default?

15 March 2016 by lberuti

Not long ago, VRX ( Valeant Pharmaceuticals Intl Inc ) was the darling of the Toronto’s stock exchange and one of Canada’s most valuable companies. Not anymore! Last October, questions arose after a report revealed VRX’s previously undisclosed relationship with Polidor, the Pennsylvania mail-order pharmacy. The company has since launched an internal investigation into the matter- last month, it said that it had to restate its financial results for 2014 and 2015 after finding that about $58mln of sales to Polidor were recognised at the wrong time -, and it has delayed filing its 2015 annual report with regulators until it is concluded. This potential late filing spooked the market as much as the fact that VRX slashed its guidance today. Indeed, such violation would theoretically allow VRX’s lenders to demand their money back sooner than originally planned and VRX would then face the prospect of defaulting on its debt. Its stock was halved (wiping out more than $10bln of market capitalisation) and its 5 year risk premium soared 170bps to 695bps.