Magellan adjusts reorganization plan to win support of largest unsecured creditor

By Peter Heap

New York, Sept. 30 - Magellan Health Services, Inc. said it made adjustments to its reorganization plan in order to win the support of its largest unsecured creditor.

In return for the changes, the creditor, R2 Investments LDC has withdraw its objections to the plan and its recent appeal of the Bankruptcy Court's decision denying termination of Magellan's exclusivity period.

R2 holds $212.5 million in 9% senior subordinated notes and $29.8 million in 9 3/8% senior notes, Magellan said.

Under the changes - described by Magellan as "non-material" - the board of directors of the reorganized company has been expanded to nine members from seven. Three of the nine initial members will be appointed by the official committee of unsecured creditors, two of whom have already been selected by the committee and are acceptable to R2. Four of the members will be appointed by Onex Corp., which is investing or backstopping the $150 million equity investment, and two will be members of management.

In addition, stockholders of reorganized Magellan will receive certain tag-along rights and R2 was granted rights to participate in certain future investments in Magellan by Onex, if any.

"We are very pleased to have gained the support of R2 for our plan of reorganization," said Steven J. Shulman, chief executive officer of Magellan, in a news release. "This development clearly paves the way for full acceptance of our plan, and for all of the company's creditor classes to receive the full benefits of the plan."

Magellan said it filed a third amended plan of reorganization with the U.S. Bankruptcy Court for the Southern District of New York. Sept. 30 is the deadline for voting. A confirmation hearing is scheduled for Oct. 8.

The Columbia, Md. behavioral managed care company said the plan will reduce its debt of approximately $600 million and bring in $150 million of new equity investment.

If the plan is approved by all classes of creditors, all aspects can be implemented including distributing 1.3% of the common stock of the reorganized company to existing preferred stockholders and 0.3% to existing common stockholders. If any creditors object these two groups will not receive anything.

Modifications to reorganization plan are at:

http://www.sec.gov/Archives/edgar/data/19411/000090951803000732/mv9-29_exhibit.txt

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