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Bausch Health Separation Of The Eye Care Business

In a new report Xtract Research examines issues associated with the potential separation by Bausch Health Companies Inc (NYSE:BHC) of its eye care business.

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Issues With The Separation Of Bausch Health's Eye Care Business

Highlights from the report include:

Under both high yield bonds and leveraged loans, generally the only way to make the Restricted Payment required for the dividend in a spin-off is pursuant to: (1) the RP Buildup basket/Available Amount; (2) general RP basket; (3) if present, a Ratio RP exception limited only by compliance with a specified pro forma leverage ratio; and (4) the Neiman Two Step dividend (using investment capacity to unrestrict the business (step one) and then using the carveout for the distribution of the stock of an Unsub (step two). BHC’s debt documents include all these provisions.

In the absence of RP capacity to pay the dividend, the company would have to structure the separation in another way, take out the restrictive debt or obtain consent from its creditors. Unless required in connection with any consent, a spin-off would not mandate that any debt be repaid.

If the company were to remove the business via a sale, two main considerations are: (1) mandated use of proceeds (ie, which debt must or may be repaid); and (2) whether the sale rises to the level of substantially all assets (which would also implicate change of control).

The separated business, regardless of how it is removed, will no longer provide credit support to remainco’s debt, and its guarantees and, for the secured debt, its pledge, will be released. So, in the case of a spin off, the quantum of Bausch Pharma debt may not be reduced, but the assets supporting that debt certainly will be.

If the company goes down the spin-off/amendment route, lenders could require paydowns as part of the approval process. Bondholders would be left out assuming valuation talk is accurate.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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