VRX Bausch Health Cos

By Anne Steele and Michael Rapoport 

Valeant Pharmaceuticals International Inc. has again reached a deal with its loan holders to amend its debt terms, giving it more breathing room as it continues to dig out from a year of business and accounting distress.

The amendment announced Thursday makes it easier for the Canadian drugmaker to meet a key debt-covenant requirement. It also gives Valeant more flexibility to sell assets and borrow more, as it aims to pare its $31 billion debt load.

But Valeant's troubles aren't fully behind it. T. Rowe Price Group Inc. filed a lawsuit against the company earlier this week in federal court in New Jersey, according to court documents made available Thursday. The mutual-fund giant, which was once one of Valeant's biggest shareholders, alleges that Valeant engaged in "a fraudulent scheme" that cost it and other shareholders billions of dollars.

A Valeant spokesman said the company hadn't yet been served with the lawsuit but was aware of it, and added that it repeated claims from existing litigation against the company.

"Valeant intends to defend itself and cannot comment further on ongoing litigation," he said.

Regarding the debt amendment, Valeant Chief Executive Joseph Papa said the company is "pleased to have the support of our lenders and appreciate their confidence in the company's future." The amendment "allows us to focus on executing our strategic plan, developing our pipeline and improving patients' lives," he said.

The debt agreement and the lawsuit accent a busy week for Valeant, also marked by upgrades for its stock by analysts at Morgan Stanley and Mizuho Securities and news that another fund giant, Fidelity, had sharply boosted its stake in Valeant in the first half of 2016.

Valeant shares fell 3.1% to $29.08 in midafternoon trading, after gaining 20% in the first three days of the week. The stock is still down nearly 90% from a year ago over concerns about Valeant's drug-price increases, accounting problems, a brush with potential debt default earlier this year, and investigations by Congress and federal regulators. The Wall Street Journal reported last week that Valeant is also under criminal investigation over whether it defrauded insurers by hiding its close ties to mail-order pharmacy Phildor Rx Services LLC.

The amendment to Valeant's debt agreement eases a requirement for the company to maintain a minimum level of Ebitda (earnings before interest, taxes, depreciation and amortization) relative to the cash interest it pays on its debt. Thursday's pact lowers that required level to Ebitda of two times interest, from its previous 2.75. That effectively allows Valeant to generate less Ebitda while still complying with the requirements set by its loan holders.

The move addresses concerns of analysts that Valeant had too little headroom in producing enough earnings to meet the old requirement. Last week, Valeant backed its guidance for the yearearnings guidance for the year, indicating it thought it could stay in compliance with the debt requirement even without a change. But Mr. Papa acknowledged then that the company's cushion wasn't "as much as investors wanted it to be" and that Valeant planned to ask lenders to loosen the requirement.

Valeant's ability to modify its debt agreements indicates it is still on good terms with most of its lenders, who generally see value in its business despite ongoing difficulties. In return for the latest change, Valeant agreed to pay a fee to its lenders and to increase the interest-rate margins on its credit facility by half a percentage point.

Lenders had previously granted Valeant a covenant break in April, when the requirement of Ebitda of 2.75 times interest was set and debtholders agreed to push back regulatory filing deadlines to spare Valeant from potential default.

In the lawsuit, meanwhile, T. Rowe Price alleges Valeant used its ties to Philidor, deception in pricing and reimbursement practices, and "fictitious accounting" to artificially inflate its results and shield its drugs from competition.

The fund company once owned as much as 21.5 million Valeant shares, a 6.4% stake, before selling most of it earlier this year after the stock's price tumbled, according to securities filings. As of June 30, T. Rowe Price owned about 1.5 million Valeant shares.

Michael Pearson, Valeant's former chief executive, and five other current or former Valeant executives are also named as defendants in the lawsuit. Alleghany Cos., another Valeant shareholder, is also a plaintiff.

The T. Rowe Price lawsuit is separate from pending class-action shareholder litigation in New Jersey that makes similar claims against Valeant and is led by the TIAA pension fund. T. Rowe Price "opted out" of the class action to pursue its claims individually, a move that enables the fund company to pursue certain claims it can't pursue in a class action.

--

Sam Goldfarb

contributed to this article.

Write to Anne Steele at Anne.Steele@wsj.com and Michael Rapoport at Michael.Rapoport@wsj.com

(END) Dow Jones Newswires

August 19, 2016 02:49 ET (06:49 GMT)

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