Goldman On Valeant: New Tax Inversion Rules Could Have 'Some' Impact, But Nothing Too Drastic
Valeant Pharmaceuticals Intl Inc (NYSE: VRX) shares had a strong Tuesday, up 10 percent, after the company's Ad Hoc Committee said it did not identify any additional items beyond the required restatements previously disclosed.
"We see the conclusion of the Ad Hoc Committee review as potentially supporting the expected 10-K filing timeline," Goldman Sachs analysts wrote in a new update on Tuesday afternoon; that filing is expected on or before April 29.
Tax Inversion Talk Impact?
Goldman also, more importantly, discussed the drama surrounding new commentary from the U.S. Treasury Department that will seek to prevent tax inversions.
Analysts were less certain here (emphasis added):
"On earnings stripping, it is difficult to estimate the potential impact to VRX, as the Treasury has not specified quantitative thresholds or ratios above which interest deductions would be disallowed. According to the excerpt below from VRX's 3Q2014 earnings call with the former CFO, it appears there could be some impact, but we also believe much of VRX's tax benefits relate to the location of its IP and transfer pricing, which was not changed by the new Treasury rules."
All in all, no enormous risks, according to the research.
What About The Credit Downgrades?
Goldman also discussed credit risks, following Moody's downgrade of CFR to B2 from B1 and its unsecured rating to B3 from B2 on March 31. It saw slightly more cause for close watch here:
"We see the Moody's downgrade as increasing the Triple-C risk as now there are two agencies that are on negative outlook (S&P also on negative watch) and that are only one notch away from Triple-C. There has been some rotation out of the name from accounts that could be potential forced sellers, but the overhang remains a risk, as there would likely still be additional significant selling pressure [in the credit markets] if there is an actual downgrade."
Valeant shares closed Tuesday near $29.
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