Mallinckrodt’s plan, disclosure statement hearing set for Oct. 4

By Sarah Lizee

Olympia, Wash., Sept. 5 – Mallinckrodt plc’s combined hearing on confirmation of its pre-packaged Chapter 11 plan and final approval of the disclosure statement is scheduled for Oct. 4, according to a notice filed Tuesday with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, the company has entered into a restructuring support agreement with holders of about 72% of its first-lien debt and about 71% of its second-lien debt, as well as the Opioid Master Disbursement Trust II, which was created out of the company’s previous bankruptcy proceedings.

The plan is built around the RSA, under which the company plans to reduce its first-lien debt by about $1.2 billion and eliminate all of its roughly $650 million of second-lien debt, while transitioning ownership of the company to its creditors.

The RSA provides for a new $250 million post-petition multi-draw, fully backstopped priming term loan facility from some existing creditors, which will be, at the election of each lender, repaid in cash at emergence or converted into takeback debt.

The DIP financing is set to bear interest at SOFR plus 800 basis points per annum, subject to a 1% SOFR floor. Any overdue amounts will bear interest at an additional 200 bps.

The financing is set to mature in one year, if not converted into takeback debt.

First-lien term debt will be reduced to $1.65 billion from $2.86 billion, which may be in the form of a new-money syndicated credit facility or takeback debt distributed to post-petition term lenders and prepetition first-lien creditors.

The prepetition first-lien creditors will also receive 92.3% of the debtors’ reorganized equity, subject to dilution, plus cash to the extent cash on hand at emergence is above specified thresholds, and takeback debt or cash.

Second-lien debt will be eliminated entirely, with second-lien creditors receiving 7.7% of the debtors’ reorganized equity, subject to dilution.

The RSA also provides for the permanent elimination of the debtors’ remaining opioid-related litigation settlement payment obligations (including the $200 million installment payment originally due on June 16) in exchange for the following:

• A $250 million payment that was made to the trust prior to the start of the Chapter 11 cases; and

• A four-year contingent value right to receive a payment (in cash or, at the company’s option subject to certain conditions, shares of the company’s equity) equal to the value of 5% of the company’s total outstanding equity (subject to dilution) less the exercise price, which will be based on a total enterprise value of $3.776 billion less funded debt at emergence plus any excess cash at emergence after the emergence-date cash sweep contemplated by the RSA.

The debtors’ non-monetary obligations to the trust will generally be preserved, including the compliance-related operating injunction.

All other claims against the debtors, except for subordinated securities claims, will be unimpaired, including the debtors’ settlement with governmental entities regarding Acthar Gel, and the associated corporate integrity agreement, and trade liabilities.

Mallinckrodt ordinary shares will be canceled for no consideration.

The company expects to complete the pre-packaged Chapter 11 process in the fourth quarter of 2023.

Mallinckrodt is a Dublin-based developer, manufacturer, marketer and distributor of specialty pharmaceutical products and therapies. The company filed its second Chapter 11 bankruptcy on Aug. 23 under case number 23-11258.

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