Rumors of a debt swap cause Valeant's shares to rise — 4 insights

Valeant's shares rose 7.8 percent on June 26 over rumors of a possible debt swap, Barron's reports.

Here's what you should know:

1. Barron's cites Evercore ISI analyst Umer Raffat saying Valeant management was considering a debt to equity swap. "When you have a debt stack that looks like our debt stack, it's not – to say it wasn't on the table wouldn't be credible. It's something that we certainly need to think about," Valeant management said.

2. A debt swap allows a company to reduce its debt while creating a "quick path to gain for unsecured debt holders." However, the swap would raise Valeant's total shares diluting earnings.

3. Valeant has approximately $18.2 billion in unsecured debt, with around $9 billion in long-dated notes, Barron's reports.

4. Mr. Ruffert wrote that Valeant could potential create $300 million on value on a $1 billion swap. He believes Valeant has $9 billion eligible for the debt swap.

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