Bausch Health, a top CLO obligor, accelerates senior loan paydowns

Bausch Health Companies Inc. (NYSE:TSX: BHC), which has spent the past five years chopping away at a legacy debt burden racked up under its old Valeant Pharmaceuticals International name, is accelerating paydowns on approximately $6 billion in senior secured term loans represented in the collateralized loan obligation market.

According to a company press release, Bausch Health is paying down an additional $275 million in senior secured term loans, bringing its total 2020 deleveraging figure to $900 million.

The Canadian company has eliminated all of its debt maturities and amortization payments through 2024 through the paydown actions. Approximately $480 million of the 2020 debt reduction took place in the fourth quarter.

Bausch Health chief executive and chairman Joseph C. Papa said strong cash flows in the fourth quarter, aided by the pharmaceutical giant’s ongoing recovery from the economic impact of the COVID-19 pandemic, gave the firm breathing room to boost its deleveraging efforts.

Valeant’s secured debt once represented the single-largest holding of any obligor in U.S. CLOs, as it racked updebt to more than $32 billion in acquisition-driven debt by 2016 under prior management. But the company's leveraged loans began trading at substantial discounts as Valeant became mired amid a drug-pricing scandal and the aftermath of a fraudulent kickback scheme involving one of its former executives.

In 2018, Valeant changed its name to Bausch Health Companies, adopting the name of its Bausch + Lomb eyecare subsidiary to shed the toxic Valeant brand. Last year it announced plans to spin off Bausch + Lomb, which accounted for 43% of revenue and 25% of 2019 earnings, according to S&P.

Bausch Health now has a target leverage figure of 5.5x compared to 7x at year’s end 2019, according to an S&P Global Ratings report from last summer.

According to data research from Trepp, Bausch Health has a $4.5 billion term loan B (priced at Libor plus 300 basis points and due in 2025) held in 390 CLO deals or 38% of all U.S. deals; and a $1.5 billion first incremental term loan (priced at Libor plus 275 basis points, also due 2025) held in 285 CLO vehicles, or 28% of deals, as of November.

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The term loan B has recovered since falling to secondary market price well below par level (100 cents on the dollar) in the mid-to-low 80s in the wake of the outbreak of the coronavirus last spring, according to Trepp. Distressed buyers heavily traded the market in late summer, pushing the price back into the high 90s range.

Both loans priced slightly below par last week as quoted by IHS Markit, Trepp noted.