Purdue Pharma says plan has ‘overwhelming support’ from creditors

By Sarah Lizee

Olympia, Wash., July 27 – Purdue Pharma, LP said the preliminary voting results for its Chapter 11 plan of reorganization show “overwhelming support,” with over 95% of the 120,000-plus votes submitted in favor of confirmation.

Out of almost 5,000 state and local governmental creditors, almost 97% voted to accept the plan, according to a Tuesday press release.

“The preliminary voting results demonstrate a broad consensus among every organized creditor group in these proceedings, and we will continue to work for even greater consensus ahead of the confirmation hearings,” Steve Miller, chairman of Purdue Pharma, said in the release.

These results follow the recent report from the third and final round of mediation, after which it was announced that 15 additional state attorneys general now support Purdue’s plan, bringing the total number of supporting state attorneys general to about 40.

The plan is supported by the official committee of unsecured creditors, the ad hoc committee of governmental and other contingent litigation claimants, the multi-state governmental entities group, the Native American tribes group, the ad hoc group of individual victims, the ad hoc group of hospitals, the third-party payor group, the ratepayer mediation participants, and the NAS committee representing caregivers and children affected by Neonatal Abstinence Syndrome.

Purdue said it expects to make public the final voting results by Aug. 2, but the tally is not expected to change materially from the preliminary results.

A plan confirmation hearing in the U.S. Bankruptcy Court for the Southern District of New York is currently scheduled to take place on Aug. 9.

Plan terms

As previously reported, the Chapter 11 plan charts a path for more than $10 billion of value, including 100% of Purdue’s assets, to be delivered to claimants and communities across the country affected by the opioid crisis, the company said.

The plan will dissolve Purdue and transfer its operating assets to a newly formed company with the public-minded mission of addressing the opioid crisis, the company said. State and local governments will neither own nor operate the new company.

New trusts

The single largest recipient of funds under the plan would be the National Opioid Abatement Trust (NOAT), a newly formed entity created to satisfy the claims of state and local governments. NOAT and an abatement trust established to satisfy claims asserted by Indian tribes and tribal organizations would together indirectly own 100% of the new company.

The plan contemplates the creation of several other trusts, including the Master Disbursement Trust (MDT), which would make payments to various private trusts; several private abatement trusts established to satisfy the claims of treatment providers, third party payors and insurance carriers, as well as legal guardians of children born with neonatal abstinence syndrome; and a personal injury trust, which will administer and make distributions on account of personal injury claims.

Purdue said each of these trusts will be required to consider the need to ensure that underserved urban and rural areas, as well as minority communities, receive equitable access to the funds.

Funding for the trusts comes primarily from three sources, including an initial cash distribution from the company of more than $500 million immediately upon emergence from bankruptcy; about $1 billion expected to be generated by the assets and the operations of the new post-bankruptcy pharmaceutical company through the end of 2024, for a projected total of roughly $1.5 billion, plus substantial additional recoveries expected from insurance claims; and $4.275 billion in cash payments by the Sackler families.

In addition to the cash funding, the company estimates that about $4 billion in value could also be provided through the new company’s public health initiatives.

Sackler settlement

Under the plan, the Sackler families have agreed to pay $4.275 billion in addition to the $225 million previously paid to the United States to resolve civil claims against Purdue’s former shareholders, for a total settlement of $4.5 billion. This amount represents a $1.5 billion increase from the $3 billion agreement in principle reached in September 2019.

Under the terms of the settlement, the money would be paid in cash on an agreed-to schedule over nine years, or 10 years if certain payments are made ahead of schedule.

Additionally, the Sackler families will be required to sell their pharmaceutical businesses within seven years of the effective date and not engage in the manufacturing or sale of opioid medications going forward.

Another settlement, reached with 15 states following mediation, includes enhanced economic consideration to be provided by the Sackler family members in the form of $50 million in incremental cash payments, consisting of $25 million on June 30, 2022, and $25 million on June 30, 2023, as well as acceleration of $50 million in previously agreed settlement payments, consisting of $25 million on June 30, 2024 and $25 million on June 30, 2025.

DOJ forfeiture credit

Because it provides billions of dollars in funding for abatement and it creates a new company dedicated at its core to abating the opioid crisis, the plan satisfies the conditions for a full credit of $1.775 billion of the $2 billion forfeiture that the company would otherwise have to pay to the United States.

Other creditor treatment

According to the disclosure statement, holders of secured claims and other priority claims will be paid in full in cash.

Holders of Avrio and Adlon general unsecured claims will receive payment in full in cash.

Holders of other general unsecured claims are disputed. Except to the extent a holder and the debtors agree to different treatment, holders will receive their pro rata share of the other general unsecured claim cash, which amounts to $15 million.

Intercompany claims will be reinstated or canceled with no distribution.

Holders of other subordinated claims and PPLP and PPI interests will not receive any distribution.

New company

After confirmation of the plan, Purdue’s assets would be transferred to the newly formed company.

The new company will exist for the purposes of funding trusts dedicated to abating the opioid crisis, developing and distributing medicines to reverse opioid overdoses and treat opioid addiction, and otherwise taking into account long-term public health interests relating to the opioid crisis.

It would be subject to covenants to ensure that it provides all of its products, including all opioid products, in a safe manner that limits the risk of diversion.

Purdue said the new company will remain subject to a formal commitment to refrain from promoting its opioid products to health care providers. A monitor will continue to ensure that the new company will comply with all applicable covenants and injunctions.

The initial post-emergence monitor will be the Purdue monitor in place as of the effective date or otherwise selected by the informal committee of governmental and other contingent litigation claimants and the multi-state governmental entities group, with the consent of Purdue and in consultation with the official committee of unsecured creditors.

The new company would be overseen by new independent managers, who will function as the board of directors. They will initially be selected by the informal committee of governmental and other contingent litigation claimants and the multi-state governmental entities group, in consultation with Purdue and the official committee of unsecured creditors, and subject to the Department of Justice’s discretionary right to observe the process.

The Sacklers will have no role in the selection of the managers or in any other aspect of the new company’s governance or operations.

Purdue Pharma is a Stamford, Conn.-based drug manufacturer. It filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York on Sept. 15, 2019 under case number 19-23649.

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