Eye care company Bausch & Lomb Inc. , under pressure after government reports that its lens care products may be linked to a rare eye infection, could face a cash crunch because of a large debt buyback announced late Wednesday, a research analyst said on Thursday.
Bausch & Lomb, whose shares fell 5.2 percent, also disclosed that health officials in Europe are investigating a handful of cases of Fusarium keratitis, a rare fungal infection that can lead to blindness and potential eye loss.
The reports of infection in Europe follow a spate of infections in Asia and the United States that led the company to voluntarily recall one of its products.
Health authorities have not yet determined a root cause of the infection, but a large percentage of U.S. patients with the infection were users of Bausch & Lomb lens products.
The stock, which is trading near three-year lows, has fallen nearly 40 percent this year and is the weakest health-care issue in the Standard & Poor's 500 index.
In a note to clients, Banc of America Securities analyst David Maris said he was concerned that it appeared Bausch is offering to repurchase the debt at a very expensive price.
Bausch said on Wednesday it planned to review data released by the U.S. Centers for Disease Control and Prevention (CDC) related to its contact lens solution product, voluntarily recalled after reports of serious infections in some users.
The company last month stopped shipping the product, ReNu with MoistureLoc, and later advised retailers to remove the product from store shelves.
The latest report from the CDC found that 27 percent of confirmed cases involved another ReNu brand, ReNu MultiPlus, suggesting the company's entire ReNu franchise may be at risk, analysts said on Wednesday.
Kristen Foster, a spokeswoman for the company, confirmed that the infection is now under investigation in Europe and noted that a certain number of cases of the infection occur routinely.
Certainly the confirmed cases under investigation do not indicate that there is an unusual trend, Foster said.
Bausch & Lomb derives 20 percent of its sales and some 50 percent of its profit from its lens care franchise, according to JP Morgan analyst Mike Weinstein.
Maris speculated that the decision to buy back the debt might be driven by possible expectations the company may further delay filing financial reports with regulators, a theory shared by Harris Nesbitt analyst Joanne Wuensch.
I don't know whether or not they are trying to preemptively manage a situation at end of month when they are in breach of covenants, Wuensch said. Wuensch had expected the company to file its annual report on May 31.
Maris said Bausch may be looking to reduce any bondholder leverage if it defaults on its debt.
That is, one or more of the bondholders may have approached the company with the alternative of either buying back the bonds or facing potential control issues later down the line, Maris said.
Bausch & Lomb has delayed the filing of its 2005 10-K as it tries to resolve tax issues and other improper behavior at subsidiaries in Brazil and Korea that have forced restatements of its results for fiscal 2001 thought 2004 and parts of 2005.
Bausch first said in mid-March it would have to delay its annual report, which was due March 31, because of those probes.
Late Wednesday, Bausch said it was offering to repurchase all of five series of bonds totaling nearly $544 million in principal. It offered to buy the bonds, a mix of notes, long-term debentures and convertible securities, at face value plus a premium of up to $4 per $1,000 of principal.
It appears to us that just one of the bond issues (the $183.9 million 7.125% Year 2028) alone will cost Bausch an additional $30 million, we estimate, on top of the $184 million to retire it, Maris said.
We believe after tendering the debt, (it) will be left with little cash, the looming ReNu situation, and an unknown potential medical legal liability.
The Hong Kong government said on April 27 it alerted the company to eye infections in users of its contact lens solution in September 2005, long before the company withdrew its product in February this year.
The stock was off $2.88 to $41.09 on the New York Stock Exchange.