Mallinckrodt exits Chapter 11 bankruptcy, cuts debt by $1.9 billion

By Sarah Lizee

Olympia, Wash., Nov. 14 – Mallinckrodt plc has completed its financial restructuring, emerged from Chapter 11 following an expedited court-supervised process and completed its Irish examinership proceedings, according to a Tuesday evening press release.

Supported by an enhanced capital structure, Mallinckrodt said it will continue to focus on advancing its business across its portfolio and executing on recent and planned product launches.

The company said it has made meaningful recent progress to stabilize the business, including achieving year-over-year net sales growth for the second consecutive quarter and year-over-year adjusted EBITDA growth for the third-quarter 2023.

As a result of the restructuring process, Mallinckrodt reduced its total funded debt by about $1.9 billion.

The company has also satisfied its obligations to the Opioid Master Disbursement Trust II, which was created out of the company’s previous bankruptcy proceedings.

Mallinckrodt said it will continue operating in line with the specialty generics operating injunction under the oversight of an independent monitor, existing Acthar-related settlement conditions and corporate integrity agreement.

As contemplated by Mallinckrodt's plan of reorganization, ownership of the business transitioned to the company’s creditors and all of the company’s outstanding ordinary shares were extinguished at emergence.

Board appointments

In connection with Mallinckrodt’s emergence, a new board of directors is being appointed.

David Stetson, executive chairman of Alpha Metallurgical Resources, and Jon Zinman, a managing director at Silver Point Capital, have been appointed to the board effective immediately.

President and chief executive officer Siggi Olafsson is also continuing to serve as a director.

The new board will ultimately consist of seven members. The company said additional appointments, including board chair, will be forthcoming.

Plan terms

As a reminder, the company entered into a restructuring support agreement prior to filing bankruptcy again 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.

The plan was built around the RSA, under which the company aimed to reduce its first-lien debt by about $1.2 billion and eliminate all of its roughly $650 million of second-lien debt.

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

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

First-lien term debt is being reduced to $1.65 billion from $2.86 billion, in the form of takeback debt distributed to post-petition term lenders and prepetition first-lien creditors.

The prepetition first-lien creditors are also receiving 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 creditors are receiving 7.7% of the debtors’ reorganized equity, subject to dilution.

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

Mallinckrodt ordinary shares are being canceled for no consideration.

Exit financing terms

According to a plan supplement filed Nov. 9, the company will issue $778.62 million of 14¾% first-lien senior secured notes due 2028, $229.4 million of first-out loans due 2028 and $641.98 million of second-out term loans due 2028.

Wilmington Savings Fund Society, FSB is trustee and Acquiom Agency Services LLC as collateral agent for the notes.

Acquiom is collateral agent and co-administrative agent with Seaport Loan Products LLC on the loans.

Interest on first-out loans will be SOFR plus 750 basis points. The second-out loans will bear interest at SOFR plus 950 bps.

Advisers

Latham & Watkins LLP, Wachtell, Lipton, Rosen & Katz, Arthur Cox LLP, Richards, Layton & Finger PA and Hogan Lovells US LLP served as Mallinckrodt’s counsel.

Guggenheim Securities, LLC served as investment banker, and AlixPartners LLP served as restructuring adviser.

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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