Mallinckrodt announces new settlements with creditor committees

By Sarah Lizee

Olympia, Wash., Sept. 3 – Mallinckrodt plc reached an agreement with its official committee of opioid related creditors and its restructuring support agreement parties to support an amended plan of reorganization, according to a press release.

The company said it will file the amended plan in the coming days with the U.S. Bankruptcy Court for the District of Delaware.

This agreement follows recently announced agreements to support the amended plan that Mallinckrodt reached with its official committee of unsecured creditors appointed in its Chapter 11 cases and some of Mallinckrodt's second-lien noteholders.

Opioid settlement

Under the agreement with opioid claimants, the amended plan will not provide for the assignment of any additional insurance rights to the trust to be established for the benefit of the holders of opioid claims and the debtors will be permitted to offer and negotiate full mutual releases with certain co-defendants, according to an 8-K filed with the Securities and Exchange Commission.

In addition, the debtors will make an additional $125 million contribution in cash to the opioid trust on the eighth anniversary of the effective date of the amended plan, increasing the total cash contributions to the opioid trust to $1.73 billion.

The debtors will contribute, in addition to the other assets under the proposed plan, 50% of the debtors’ interest in certain claims arising from the debtors 2015 to 2018 share repurchase program, and holders of opioid claims will receive a release from the debtors and certain other parties.

The opioid settlement further provides that the terms of the debtors’ option to prepay the cash contributions to the opioid trust will be modified, including to extend the debtors’ right to prepay those claims at a specified discount until 18 months, from 12 months previously, after the effective date of the amended plan, and that the terms of the new opioid warrants will be modified so as to be exercisable for six years from the effective date of the amended plan in all cases.

Finally, the debtors and the opioid claimants have agreed in principle on the covenants under the opioid deferred cash payments terms.

UCC settlement

Under the agreement in principle with the unsecured creditors committee, the amended plan will provide for the establishment of a trust for the benefit of the holders of general unsecured claims against the debtors, into which the debtors will contribute $135 million in cash in lieu of the treatment currently under the proposed plan, certain preference actions, $20 million in cash contingent upon both the receipt of regulatory approval of Terlivaz by the U.S. Food and Drug Administration and reaching $100 million of cumulative net sales of Terlivaz, all avoidance actions arising out of the acquisition of Sucampo Pharmaceuticals, Inc. against selling shareholders, 50% of the debtors’ interest in certain claims arising from the debtors 2015 to 2018 share repurchase program, all proceeds of the debtors’ 63% ownership interest in the priority review voucher related to VTS-270 and 35% of the proceeds of a sale of debtors’ priority review voucher related to Stratagraft.

Second-lien notes settlement

Under the agreement in principle with the settling second-lien noteholders and the second-lien trustee, the holders of second-lien notes will receive new 10% second-lien senior secured notes due 2025 that will have the same principal amount and other economic terms as the existing notes, but will have covenants substantially equivalent to those set forth in the takeback second-lien notes indenture.

The debtors will also pay the reasonable and documented out-of-pocket fees and expenses of the settling second-lien noteholders, the second-lien trustee and the collateral agent for the second-lien notes.

Plan support

Mallinckrodt said its plan is now supported by holders of about 84% of the company's guaranteed unsecured notes; an ad hoc group of first-lien term lenders holding about $1.3 billion of the company's outstanding first-lien term loans; 50 states and territories, and the plaintiffs' executive committee in the opioid multidistrict litigation, which will recommend that more than 1,000 plaintiffs in multi-district litigation against the company support the amended plan and restructuring support agreement; the multi-state governmental entities group, which represents more than 1,300 counties, municipalities, tribes and other governmental entities, across 38 states and territories, with opioid-related litigation against the company; an ad hoc group of second-lien noteholders holding a majority of the outstanding second-lien notes; the unsecured creditors committee; and the opioid-related creditors committee.

Looking forward

The bankruptcy court will hold a confirmation hearing to consider approval of the plan, which will start on Sept. 21.

If the amended plan is confirmed, the company intends to file an examinership proceeding in Ireland to effectuate the reorganization in Ireland, which the company expects may take about 90 to 150 days.

Advisers

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.

Dublin-based Mallinckrodt develops, manufactures, markets and distributes specialty pharmaceutical products and therapies. The company filed Chapter 11 bankruptcy on Oct. 12, 2020 under case number 20-12522.

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