Goldman, “Fast” Fred, and Valeant Just Had To Up The Yields — Mid-Offering — On The Junk Bonds, For B + L

I just cannot resist this. Apparently, the M&A debt financing the Valeant buyout of B + L just wasn’t. . . junky enough.

That is to say — potential high yield investors were apparently shying away from the deal, at current pricing.

So, while out on the West Coast leg of the road show, Goldman and Valeant, and by implication, “Fast” Fred, had to bump up the interest rates being offered to be paid on the debt.
This deal may yet not get done — even in these loosening credit markets. Wow.

Of course, it’s not that the coupon yield on the debt was priced too low — that’s just the symptom.

No, the root cause of the marketing problem is that Goldman (here conflicted!) has approved too high an overall price for B+L, at Fred’s insistence. Thus, Valeant will need to take on too much additional debt, overall, to give Fred his $8.7 billion. That’s why this deal may yet crater.

More later; here is Reuters on it all:.

. . . .According to market sources, the shorter dated tranche – which is expected to gain the most traction – is now being touted around a yield level of 7% from initial talk in the 6% range and then mid to high 6% late last week. . . .

I think it’s going to be tough to get such a big deal under way,” said Gershon Distenfeld, director of high-yield debt at Alliance Bernstein. . . .

“When people have to sell to meet redemptions in a very illiquid market, their appetite to buy is not what it is in a normal market.”

Goldman Sachs is lead-left bookrunner. . . . The two tranches are callable after three and five years respectively.

“My guess is that they will get this deal done but they will have to pay up for it,” said Mark McCabe of KDP Investment Advisors, an independent provider of credit research and analysis.

“The acquisition doesn’t close until September. They could put the deal on hold and come back in a few weeks when the market could be a little more receptive. . . .”

I still can’t get over the idea that — on a nearly $9 billion M&A deal — where the acquirer is a public company (and thus the public shareholders are being asked to foot the bill for the deal) — Goldman Sachs is sitting on BOTH sides of the table. Afterall, no reputable retained, independent banker party has opined that the deal is in any way fair to Valeant’s pre-deal shareholders. Valeant just closed on over $2 billion of dilutive common shares issued, yesterday. And as I say, those are dilutive to the pre-deal shareholders. I’ve now looked far and wide — and I cannot find another US public company M&A deal with a closed value of $8 billion or more, in the last five years — where one bank was on BOTH sides. You’ve been amply warned.


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