UPDATE 1-Valeant bonds steady after analyst call

Mon Oct 26, 2015 5:16pm EDT
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By Natalie Harrison and Davide Scigliuzzo

NEW YORK, Oct 26 (IFR) - Valeant bonds were volatile on Monday morning but steadied after the drugmaker's management sought to alleviate investor fears of potential fraud at the company.

One high-yield investor said Valeant's 5.5% 2023s traded as low as 83.5 before steadying to around 86 after the company said a board review had found the company was in compliance with the law on revenue recognition from drugs sold through the specialty pharmacy Philidor.

Its Board of Directors has set up an ad hoc committee to review allegations by short seller Citron Research related to the company's business relationship with Philidor and related matters.

Citron Research accused the drugmaker of using Philidor to create "phantom sales" of its products or push more product through distribution channels than sales would warrant, an allegation that Valeant has denied outright.

"My overall take is that management did a reasonable job conveying that their accounting is above board. The call removed fears that there was a legal or accounting fraud issue," said one of the investors who owns the 2023 bonds.

But he said there was still a feeling that the company was acting "at the edge of the letter of the law" and that further weakness in Valeant's bonds was likely.

"The biggest issue was allegations about revenue inflation," said the investor. The company appeared to pour cold water on those concerns.   Continued...