VRX restating earnings...BLATANT frontrunning

Daal said:
What is the increase in the implied default probability? certainly seems less than the impression you would get by looking at the stock
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Right, so this is SR CDS, which assumes a 40% recovery rate by convention. This implies a 5Y risk-neutral default probability of arnd 45%, which is roughly 6% higher on the day, assuming I did all the arithmetic correctly.
 
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destriero said:
You have to approximate the recovery-rate. It makes the prob hard to calc. I would think the recovery rate is North of 50%.

Prob of Y1 default = yield on VRX bonds over RFR / (1 - recorate)

You can solve for it with the CDS.
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By convention, the recovery rate is assumed to be 40% for senior and 20% for subordinated for standard CDS contracts such as this one.
 
I have read somewhere (I don't fully understand the analysis) that Bosch and Lomb is worth 20Bn and Salix is worth 15Bn and aren't affected by the drug pricing and phildor scandals. Clearly the rest of Valeant's portfolio has some value. So the recovery rate might be a lot higher which is why bonds are surprisingly strong for a company who has 3:1 Debt to Equity and a stock that is down almost 80% in 6 months.
 
newwurldmn said:
I have read somewhere (I don't fully understand the analysis) that Bosch and Lomb is worth 20Bn and Salix is worth 15Bn and aren't affected by the drug pricing and phildor scandals. Clearly the rest of Valeant's portfolio has some value. So the recovery rate might be a lot higher which is why bonds are surprisingly strong for a company who has 3:1 Debt to Equity and a stock that is down almost 80% in 6 months.
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They are probably worth a decent amount, they need to sell parts of this stuff to build a better balance sheet fast. Mike Pearson is clearly delusional if he thinks he can sell non-core assets and keep the company alive with non-gaap guidance promises
 
newwurldmn said:
I have read somewhere (I don't fully understand the analysis) that Bosch and Lomb is worth 20Bn and Salix is worth 15Bn and aren't affected by the drug pricing and phildor scandals. Clearly the rest of Valeant's portfolio has some value. So the recovery rate might be a lot higher which is why bonds are surprisingly strong for a company who has 3:1 Debt to Equity and a stock that is down almost 80% in 6 months.
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Wait a sec, so Valeant bought Salix for $11.1bn a while back. Since then we have learned the following: 1) Xifaxan, which is Salix's main drug is facing a patent challenge; 2) Valeant's Xifaxan sales missed to the tune of, I dunno, 40% or thereabouts vs expectations. And yet, someone will pay $15bn for it? 35% higher than what a voracious bidder with an acquisition-centric business model and expectations of pricing power paid? Does that really compute for you?

I haven't done the math for Bausch & Lomb, but you get the idea...
 
Martinghoul said:
Wait a sec, so Valeant bought Salix for $11.1bn a while back. Since then we have learned the following: 1) Xifaxan, which is Salix's main drug is facing a patent challenge; 2) Valeant's Xifaxan sales surprised to the downside to the tune of, I dunno, 40% or thereabouts vs expectations. And yet, someone will pay $15bn for it? 35% higher than what a voracious bidder with an acquisition-centric business model paid? Does that really compute for you?
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A lot of the lower than expected sales across different drugs had to do with inventory drawdows among some of the buyers, as a long doctors continue to prescribe stuff, this will be a temporary effect
 
Daal said:
A lot of the lower than expected sales across different drugs had to do with inventory drawdows among some of the buyers, as a long doctors continue to prescribe stuff, this will be a temporary effect
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If you say so...
 
So now that I can see the bonds properly, using the BBG closes (11th March to 15th March)...

1) In yield terms, 5y sold off 274bps (from 8.3% to 11.04%), while 10y sold off 205.7bps (from 8.115% to 10.172%).
2) Moody's downgrade from Ba3 to B1
3) The curve inverted again and the 5s10s yield spread closed at all time lows of -87bps. That's the sort of thing you see happen with distress. For a comparison, using the generic curves, I see 5s10s slope for USD A-rated healthcare names at +86bps.
 
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