Mallinckrodt, noteholders negotiate plan treatment; no deal reached

By Sarah Lizee

Olympia, Wash., Nov. 5 – Mallinckrodt plc said that as of Friday, it still hasn’t reached an agreement with holders of the 10% first-lien senior secured notes due 2025 issued by Mallinckrodt International Finance SA and Mallinckrodt CB LLC with respect to the possible treatment of noteholder claims under a proposed plan of reorganization.

According to an 8-K filed with the Securities and Exchange Commission, Mallinckrodt’s last proposal included the following terms:

• An exchange ratio equivalent to the optional redemption price in the existing indenture at the exit date, which is Treasuries plus 50 basis points until April 15, 2022, then the call schedule, plus 2.25% of par;

• New senior secured first-lien notes with a coupon payable in cash at 6˝% and a maturity of six years, putable at 101 upon a change of control;

• Equity claw consistent with current indenture for two years post emergence, subject to any equity offering proceeds being first used to pay down the tort prepayment option;

• Call protections of Treasuries plus 50 bps make whole for three years after plan effective date, provided that the exchange first-lien notes will be callable at par for 90 days following the plan effective date, then callable at 103.25 in year four, 101.625 in year five, and par after that;

• Substantially the same covenants as credit agreement debt;

• Uncapped carve-outs for intercompany transactions;

• Subject to pro forma first-lien net leverage not exceeding 4.25x, restricted settlement payments may also be made with cash on hand, asset sale proceeds (in lieu of prepaying first-lien debt or reinvesting) or proceeds from new first-lien debt;

• At the company’s option, in lieu of issuing the exchange first-lien notes, existing first-lien notes may be refinanced at, or prior to, exit at the exchange ratio plus accrued interest; and

• No exit fee.

The last proposal given by the noteholders included these terms:

• An exchange ratio equivalent to the optional redemption price in the existing indenture at the exit date plus 2% of par;

• New exchange first-lien notes with a coupon payable in cash at a fixed rate equal to 6.32% plus the five‐year Treasury yield as of emergence and a maturity of six years, putable at 101 following a change of control;

• Equity claw consistent with current indenture for two years post emergence, subject to any equity offering proceeds being first used to pay down the tort prepayment option;

• Call protections of Treasuries plus 50 bps make whole for three years after the plan effective date, then callable at 103.75 in year four, 101.875 in year five and par after that;

• Substantially the same covenants as credit agreement debt;

• At the company’s option, in lieu of issuing the exchange first-lien notes, existing first-lien notes may be refinanced at, or prior to, exit at the exchange ratio plus accrued interest; and

• An exit fee of 3% based on existing principal to be paid to all first-lien noteholders on the effective date.

Mallinckrodt said that during negotiations, the company and noteholders exchanged potential terms, including as to the exchange ratio and the coupon, but no agreement over those terms was reached.

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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