Mallinckrodt creditors say plan ‘grossly understates’ enterprise value

By Sarah Lizee

Olympia, Wash., Sept. 14 – Some holders of Mallinckrodt plc’s 4¾% senior notes due 2023 have objected to the company’s Chapter 11 plan of reorganization, saying the plan “grossly understates” the enterprise value and equity value of the reorganized debtors, according to filings with the U.S. Bankruptcy Court for the District of Delaware.

The plan estimates the total enterprise value to be between $5.2 billion and $5.7 billion, with a midpoint of $5.45 billion. The debtors report the implied equity value for the reorganized debtors to be between $563 million and $1.06 billion, with a midpoint of $813 million.

Meanwhile, the bondholders estimate an enterprise value between $4.2 billion and $7.7 billion, with a midpoint of $5.95 billion, and equity value between $1.05 billion and $4.7 billion, with a midpoint of $2.9 billion.

“We believe the debtors have excluded certain recent developments that have quite improved the cash flow projections of the reorganized debtors,” the creditors said.

On June 15, the Food and Drug Administration approved the debtors’ StrataGraft, a product that eliminates or reduces the need for autografting, a painful procedure in harvesting skin tissues from one site in the patient and transplanting it to the site of severe burns.

“Based on the annual U.S. StrataGraft sales of $59 million, and extrapolating potential revenue (based on population size) from other 28 countries that have mutual agreement with the FDA, we estimate an annual sale of $150 million,” the bondholders said.

“In our view, these projections understate the true global revenue of the world since there are 194 countries with a population of 7.8 billion.

“Using the same method to extrapolate to the rest of the world, we estimate the total annual free cash flow from StrataGraft at $19 million in 2021, $75 million in 2022, and $695 million from 2023 through 2032.”

The creditors added that they believe the debtors have not included other products in the pipeline to their estimates.

“We believe if all the products that are in the pipeline are fairly estimated, the true valuations of the debtors would be much higher,” the bondholders said.

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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