Mallinckrodt gains plan support from lenders of $1.3 billion loans

By Sarah Lizee

Olympia, Wash., March 10 – Mallinckrodt plc has reached agreement with an informal group holding about $1.3 billion of its outstanding first-lien term loans to support the company's previously announced restructuring support agreement, according to a press release issued Wednesday.

The agreement, which is based on providing new term loan financing to replace the first-lien term loans, resolves the open dispute between the company and the first-lien term loan lenders as to how those lenders are to be treated under the restructuring plan and serves to extend near-term debt maturities.

“With the support of our first-lien term loan lenders who have become parties to our RSA, we now have support from many of our largest creditor constituents as we continue to build greater consensus towards an outcome that should maximize value and benefit our patients, employees, customers, suppliers and other partners,” Mark Trudeau, president and chief executive officer of Mallinckrodt, said in the release.

Under the terms of the alternative treatment for first-lien term loan lenders, if not otherwise refinanced in full in cash prior to the date the company’s plan of reorganization becomes effective, first-lien term loan lenders will receive term loans on the following terms through a plan of reorganization:

• Increase in Libor margin of 250 basis points, to a total interest rate of Libor plus 525 bps and Libor plus 550 bps for the first-lien term loans due in 2024 and 2025, respectively, subject to a 75 bps Libor floor;

• Maturity extension to the earlier of Sept. 30, 2027 or 5.75 years following the plan effective date; and

• No financial maintenance covenants.

Alternatively, the company may refinance in full in cash the around $1.9 billion of currently outstanding first-lien term loans at par prior to or on the plan effective date, subject to reduction for payment upon court approval of the 2020 excess cash flow sweep calculated to be roughly $114 million.

There will be an exit payment of 50 bps if the first-lien term loans are refinanced in full in cash prior to or on the plan effective date, or 100 bps if the first-lien term loans are not refinanced.

The cash collateral order will be modified to pay an incremental 50 bps of adequate protection interest during the case, with an agreement to treat adequate protection payments as satisfying the lenders' interest entitlements upon the plan effective date.

As previously reported, the company entered bankruptcy in October to implement the restructuring support agreement and key legal settlements, including opioid claims.

The restructuring support agreement provides for a financial restructuring designed to strengthen the company’s balance sheet and reduce its total debt by about $1.3 billion, excluding the 2020 excess cash flow sweep to first-lien term loan lenders noted above.

In addition to the first-lien term loan lenders, upon effectiveness of the amendment, the restructuring support agreement will be supported by holders of about 84% of the company's guaranteed unsecured notes, 50 states and territories and the plaintiffs' executive committee in the opioid multidistrict litigation, and the multi-state governmental entities group (MSGE), which represents more than 1,300 counties, municipalities, tribes and other governmental entities, across 38 states and territories, with opioid-related claims against the company.

To become effective, the agreement must be supported by lenders holding 66.7% of each of the first-lien term loans due in 2024 and the first-lien term loans due in 2025, the governmental informal committee, the MSGE group and majority of the guaranteed bondholders.

The implementation of the settlement is subject to the support of all parties and approval of a Chapter 11 plan by the bankruptcy court.

Latham & Watkins LLP, Ropes & Gray LLP and Wachtell, Lipton, Rosen & Katz are serving as counsel, Guggenheim Securities, LLC is serving as investment banker and AlixPartners LLP is serving as restructuring adviser to Mallinckrodt.

Gibson, Dunn & Crutcher LLP is serving as counsel and Evercore Group LLC is serving as financial adviser to the informal group of first-lien term loan lenders. Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as counsel and Perella Weinberg Partners LP is serving as financial adviser to the informal group of guaranteed unsecured bondholders. Kramer Levin Naftalis & Frankel LLP, Brown Rudnick LLP and Gilbert LLP are serving as counsel, and Houlihan Lokey is serving as financial adviser to the governmental informal committee. Caplin & Drysdale is serving as counsel and FTI Consulting is serving as financial adviser to the MSGE group.

Dublin-based Mallinckrodt develops, manufactures, markets and distributes specialty pharmaceutical products and therapies. The company filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on Oct. 12 under case number 20-12522.

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