Moody's may downgrade Valeant

Moody's Investors Service said it placed Valeant Pharmaceuticals International's B1 corporate family rating, Ba3 probability-of-default rating and Ba3 $300 million senior unsecured notes due 2011 (LGD3, 39%) under review for possible downgrade following the company's announcement that it will restate certain financial statements as a result of accounting errors related to accounting for stock options.

The review is prompted primarily by Moody's concerns that a failure to file financial statements with the Securities and Exchange Commission on time could lead to an acceleration of debt maturities. According to the indentures governing $300 million of Valeant's senior notes, its $240 million 3% convertible notes and $240 million 4% convertible notes, failure to file SEC reports on time constitutes a covenant violation. If the trustee or holders of 25% of the respective series of notes or convertibles declare a default, Valeant must cure the violation within 60 days or the debt becomes immediately due.

The agency said secondary concerns include the company's cash flow relative to debt, which has remained somewhat weak for Moody's B1 corporate family rating, and delays in the expected timeline for Viramidine regulatory filings following Viser1 data published in March 2006 and Viser2 data published in September 2006.

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