The drama continued for Valeant (VRX) last week after it sought to restructure $3 billion in debt, and remove or modify certain of its interest maintenance covenants. The company got the refinancing done and the covenant relief it requested:

Valeant announced today that it has priced its previously announced offering of $1.25 billion aggregate principal amount of 6.50% senior secure notes due 2022 (the “2022 Notes”) and $2 billion aggregate principal amount of 7.00% senior secured notes due 2024 (the “2024 Notes” and, together with the 2022 Notes, the “Notes”). The aggregate size of the offering reflects an increase of $750 million from the previously announced offering size.

Valeant was able to remove the maintenance covenants of Term B loans due 2022 and modify maintenance covenants under its revolving credit facility. It was also able to push back near-term maturities another five to seven years. The likely risked breaching debt covenants this year. I felt its bankers were lenders of last resort and should have extracted high rates and warrants.

Kicking The Can Down The Road?

The debt deal is in stark contrast to the company’s posture in Q4 2015 when it vowed to pare debt and focus on maintaining cash flow. Its acquisition of Addyi has been a $1 billion headache, and the loss of pricing power in key drugs has hurt sales and cash flow. In my opinion, the debt deal is nothing more than “kicking the can down the road.” SA author Orange Peel had this to say:

We know there are real businesses at the core of the company, and with the new CEO and a new business model, we can’t help but feel like things can’t get worse forever. We are not saying that the company definitely isn’t going to go bankrupt. What we are saying is that we do believe the fundamentals of the business should eventually level off as the company finds its bottom.

However, I estimate the company’s’ sum-of-the parts is $0. Secondly, the company’s fundamentals will worsen in the near term; its debt/EBITDA, currently above 8x, could become untenable by the time it “finds its bottom.”