Valeant Pharmaceuticals International Inc. is offering itshighest-ranking creditors more control over its cash in return forgiving it additional flexibility to tackle its more than $30billion debt load.

The embattled drugmaker that grew its business through more than50 acquisitions wants investors in its loans and credit line togive it the flexibility to sell more of those assets — on thecondition that proceeds be used to repay secured borrowings,according to a person with knowledge of the matter. The company isalso seeking to permanently loosen the ratio on its interestcoverage maintenance covenant to two times from 2.75 times, saidthe person who asked not to be identified without authorization tospeak publicly.

In return, Valeant is offering to boost the interest rate on itsloans by 0.5 percentage point and pay lenders a one-time fee of0.25 percentage point, said another person.

The company needs approval from more than 50% of the lenders onits roughly $12 billion of loans and revolver to revise the creditagreement, regulatory filings show. Banks represent about 25% ofthe investor base in that senior debt and are in support of thechanges, one of the people said.

A Valeant representative declined to comment on the proposedchanges to the credit pact.

If approved, the changes will — at least for now — provideValeant with relief from one of investors' biggest worries: thatthe Laval, Quebec, company would breach the terms on its debt,potentially setting off a chain of events that could be disastrousfor shareholders.

Separately, the Wall Street Journal reported Wednesday thatfederal prosecutors are investigating whether Valeant defraudedinsurers by hiding its ties to a mail-order pharmacy, Philidor.

Higher Fee

Some of Valeant's lenders said Tuesday before terms wereproposed they'd be willing to work with the company on an amendmentif they could secure a generous fee or a higher interest rate,according to other people with knowledge of the matter who askednot to be identified without authorization to speak publicly.

This is the second time this year that Valeant is asking forrelief from its lenders. The company tried to renegotiate termswith lenders in April when it was in default on some of its debtfor missing a reporting deadline and its bonds and loans weretrading at steeply discounted prices. Valeant had to sweeten termsand offer more money to convince lenders to let it relax itsinterest coverage maintenance covenant and waive the default.

Valeant's credit agreement restricts it from selling more than4% of its assets, something that it needs to change before it canfollow through on its plan for divestitures. The company's bondsand loans surged Tuesday after Valeant reaffirmed its earningsguidance for the year and CEO Joe Papa unveiled plans to sell about$8 billion worth of assets in the next year or so.

Coverage Ratio

The interest coverage ratio was supposed to step up to 2.75times starting in the second quarter, meaning Valeant had togenerate at least $4.675 billion of 12-month Ebitda — enough tocover its $1.7 billion of interest expense at least 2.75 times.Ebitda, a measure often used to assess how much cash a company cangenerate for debt payments, stands for earnings before interest,taxes, depreciation and amortization.

Valeant is also seeking to ease restrictions under its creditpact that prevent it from raising junior-ranking debt. Valeantwould have to divert proceeds of such offerings to repay seniordebt.

Lenders have until Aug. 17 to submit their votes to BarclaysPlc, the bank managing the amendment process.

The proposed changes wouldn't affect the other maintenancecovenant on Valeant's loans, which requires it to keep secured debtbelow 2.5 times Ebitda. Loan investors can start asking for theirmoney back if Valeant breaches either test.

The drugmaker has been restricted from making acquisitions worthmore than $250 million until it reduces leverage below 4.5times.

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