Moody's just put Valeant under review for a downgrade

It’s been an ugly day for Valeant Pharmaceuticals. The stock is down around 9% in Monday’s trading on the news that it would delay a fourth quarter earnings announcement expected Monday morning.

Now here’s more bad news — Moody’s ratings agency is putting a bunch of Valeant debt under review for a downgrade.

Here’s the part you have to read [emphasis ours0:

Valeant’s Ba3 Corporate Family Rating (under review for downgrade) reflects its good scale in the global pharmaceutical industry with annual revenue above $10 billion, its strong diversity, its high profit margins, and its good cash flow. The ratings are supported by low exposure to patent cliffs, and growth from successful products like Jublia (antifungal) and Xifaxan for irritable bowel syndrome. In addition, the ratings are supported by management’s commitment to reduce debt/EBITDA, using excess cash flow for debt repayment.

However, the ratings also reflect moderately high financial leverage (pro forma gross debt/EBITDA of 5.5x), and significant business challenges related to Valeant’s pricing strategy and aggressive acquisition appetite. Valeant is confronting significant scrutiny on its pricing practices, including those on products acquired through acquisitions, and uncertainty related to government investigations. In late 2015,Valeant announced it was terminating its relationship with specialty pharmacy distributor Philidor, and Valeant is transitioning to a new distribution arrangement with Walgreens.

More on this to come…

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