Pershing Square is Being Skinned Alive In Valeant Today, Losses Top $400 Million

Shares of VRX are plunging, in earnest, right now–off by almost $20 or 30%. The company missed expectations by a football field. But I suspect the verbiage in their conference call, regarding covenants that might be breached, which can cause a default, is what’s spooking investors.

• Net leverage to pro forma adjusted EBITDA per credit agreement expected to be ~5x by year end 2016
• Credit agreement — March 30th: 10-K due; default if not delivered — 30 days to cure default by delivering 10-K (if not filed by March 30th) — April 29th: event of default if 10-K is not delivered
• Bond indentures — March 16th: If 10-K not filed, breach of the reporting covenant in the indentures; trustee or holders of at least 25% of any series of notes may deliver a notice of default — 60 days from the date of receipt of a notice of default to file the 10-K and thereby cure the default
• Launching process with bank lenders next week to seek to extend deadline for filing our 10-K and Q1 10-Q, and waive cross-default arising from breach of reporting covenant in the indentures
• Plans to pay down $1.7 bln debt this year

According to recent filings, Pershing Square owns about 20 million shares of VRX. Valueact, Sequoia and Paulson are also major shareholders. The hedge fund industry are racked with immeasurable losses today, long this bullshit stock from absurdly high levels.

VRX has more than $30 billion in debt. With today’s drop in share price, their debt/eq level is approaching 2x.