Mallinckrodt plc – Leading Pharmaceutical Files Chapter 11 to Reduce Unsustainable Debt Levels and Resolve Opioid-Related Liabilities; RSA Has $1.3bn Debt Reduction with Noteholders Owning Emerged Company and $1.6bn (plus Warrants) Opioid Settlement

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October 12, 2020 – Mallinckrodt plc and 63 affiliated Debtors (NYSE: MNK; “Mallinckrodt” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-12522. The Debtors, a global specialty pharmaceutical company that produces and sells generic and branded medical and pharmaceutical products, are represented by Michael J. Merchant of Richards, Layton & Finger, P.A. Further board-authorized engagements include (i) Latham & Watkins LLP; Ropes & Gray LLP; and Wachtell, Lipton, Rosen & Katz as general bankruptcy co-counsel, (ii) AlixPartners LLP as financial advisors, (iii) Guggenheim Securities, LLC as investment banker and (iv) Prime Clerk as claims agent. 

The Debtors’ lead petition notes between 10,000 and 25,000 creditors; estimated assets of $9,584,626,122 and estimated liabilities of $8,647,811,427. Documents filed with the Court list the Debtors’ ten largest unsecured creditors as (i) Centers for Medicare & Medicaid Services ("CMS") ($650.0mn payor rebates), (ii) Deutsche Bank Trust Company America (as trustee for $610.3mn 5.75% Senior Notes due 2022), (iii) Deutsche Bank Trust Company America (as trustee for $514.7mn 5.625% Senior Notes due 2023), (iv) Deutsche Bank Trust Company America (as trustee for $387.2mn 5.5% Senior Notes due 2025), (v) Deutsche Bank Trust Company America (as trustee for $133.7 4.75% Senior Notes due 2023), (vi) McKesson ($70.7mn disputed distributor fees claim), (vii) Amerisource Bergen ($69.9mn disputed fees claim), (viii) Cardinal ($22.9mn disputed fees claim), (ix) Ascent (Prime/ESI) ($17.3mn disputed fees claim),and (x) Pharmatop ($11.5nb trade claim).

All 50 of the Debtors' top 50 unsecured creditors have claims in excess of $1.0mn.


  • Files with $8.6bn of liabilities, including $5.3bn of funded debt and $1.6bn of opioid-related liabilities
  • Agrees RSA with: holders of 84% of unsecured notes; 50 states and territories; and "executive committee" representing plaintiffs in opioid multidistrict litigation ("Opioid MDL") 
  • RSA has debt reduced by $1.3bn; noteholders with 100% of emerged Debors' equity; general unsecured creditors splitting $150.0mn recovery pool; and equity getting nothing
  • Opioid Settlement would create trust(s) to channel (i) $1.6bn (eight payments over 7 years, beginning with $450.0mn payment upon emergence) and (ii) warrants worth 20% of emerged Debtors' equity 
  • Separate settlement would resolve Acthar Gel's Medicaid dispute with $260.0mn paid over seven years and state Medicaid programs receiving 100% rebates on Acthar Gel Medicaid sales
  • Debtors file adversary action against 1,000s of government entities to stay existing litigation for 270 days

In a press release announcing the filing, Mallinckrodt advised that it had filed for bankruptcy protection to: “modify its capital structure, including restructuring portions of its debt, and resolve several billion dollars of otherwise unmanageable potential legal liabilities.

The Company intends to use the Chapter 11 process to provide a fair, orderly, efficient and legally binding mechanism to implement a restructuring support agreement ('RSA') that, among other things, provides for an amended proposed opioid claims settlement and a financial restructuring that would:

  • Reduce the Company's total debt by approximately $1.3 billion, improving the Company's financial position and better positioning it for long-term growth; 
  • Resolve opioid-related claims against the Company, its subsidiaries and related entities; and 
  • Resolve various Acthar Gel-related matters, including the CMS Medicaid rebate dispute, an associated False Claims Act ('FCA') lawsuit and an FCA lawsuit relating to Acthar's previous owner's interactions with an independent charitable foundation."

RSA and Plan Overview

In connection with the Chapter 11 filing, the Debtors have entered into the RSA [executed version attached below], further to which the Debtors look to reduce total debt by approximately $1.3bn. improving the Company's financial position and allowing the Company to continue driving its strategic priorities and investing in the business to develop and commercialize therapies to improve health outcomes. 

Parties to the RSA include: (i) holders of approximately 84% of the Company's guaranteed unsecured notes; (ii) 50 states and territories; and (iii) a court-appointed plaintiffs' executive committee representing the interests of thousands of plaintiffs in the Opioid MDL, which has agreed to recommend that the more than 1,000 counties, municipalities (including cities, towns and villages), Native American tribes and other opioid claimants in the Opioid MDL support the RSA. 

Under the terms of the RSA:

  • All allowed First Lien Credit Agreement Claims, First Lien Note Claims and Second Lien Note Claims are expected to be reinstated at existing rates and maturities; 
  • Holders of allowed Guaranteed Unsecured Note Claims are expected to receive their pro rata share of $375 million of new secured second lien notes due seven years after emergence and 100% of New Mallinckrodt Ordinary Shares, subject to dilution by the warrants described below and certain other equity; 
  • Trade creditors and holders of allowed General Unsecured Claims are expected to share in $150 million in cash; and 
  • Equity holders and non-guaranteed unsecured noteholders are expected to receive no recovery.

Amended Proposed Opioid Settlement

The Debtors have reached an agreement in principle on the terms of an amended proposed settlement that would resolve opioid-related claims against Mallinckrodt that will "eliminate billions of dollars in alleged liabilities." The agreement actually amends the proposed settlement reached at the end of February 2020 with the same headline figures of $1.6bn and warrants representing 20 of equity (at $3.15 per share strike price), except that the payments would be made over eight years (not seven); and clearly this is now to be resolved under the auspices of a bankruptcy.

Under the terms of the amended proposed settlement:

  • Opioid claims would be channeled to one or more trusts, which would receive $1.6 billion in structured payments. 
    • $450 million would be received upon the Company's emergence from Chapter 11; 
    • $200 million would be received on each of the first and second anniversaries of emergence; and 
    • $150 million would be received on each of the third through seventh anniversaries of emergence with a one-year prepayment option at a discount for all but the first payment. 
  • Opioid claimants would also receive warrants for approximately 19.99% of the Company's fully diluted outstanding shares, including after giving effect to the exercise of the warrants, exercisable at a strike price reflecting an aggregate equity value of $1.551 billion. 
  • Upon commencing the Chapter 11 filing, the Debtors will comply with an agreed-upon operating injunction with respect to the operation of its opioid business

Resolution of Certain Acthar Gel-Related Matters 

The Debtors have reached an agreement in principle with certain governmental parties to resolve certain disputes relating to Acthar Gel and which was predicated on the Debtors filing for bankruptcy. Further to the agreement, the Debtors would pay $260.0mn over seven years and reset Acthar Gel's Medicaid rebate calculation as of July 1, 2020, such that state Medicaid programs will receive 100% rebates on Acthar Gel Medicaid sales, based on current Acthar Gel pricing. Additionally, upon execution of the settlement, the Debtors will dismiss its appeal of the CMS Medicaid rebate ruling currently pending in the U.S. Court of Appeals for the D.C. Circuit. The settlement would resolve the CMS Medicaid rebate dispute, the associated FCA lawsuit in Boston and an FCA lawsuit in the Eastern District of Pennsylvania relating to Acthar's previous owner's interactions with an independent charitable foundation. 

Mallinckrodt expects to complete the settlement over the next several months, subject to Bankruptcy Court approval. 

Prepetition Indebteness (as at June 26, 2020 and sourced from 10-Q) 

Carrying Value Fair Value

Level 1:

5.75% senior notes due August 2022



4.75% senior notes due April 2023



5.625% senior notes due October 2023



5.50% senior notes due April 2025



10.00% first lien senior notes due April 2025



10.00% second lien senior notes due April 2025



Revolving credit facility



Level 2:



9.50% debentures due May 2022



8.00% debentures due March 2023



Term loan due September 2024



Term loan due February 2025



Total Debt



Significant Shareholders

  • BlackRock Fund Advisors: 6.18%
    The Vanguard Group, Inc.: 5.26%

About the Debtors

According to the Debtors: “Mallinckrodt is a global business consisting of multiple wholly owned subsidiaries that develop, manufacture, market and distribute specialty pharmaceutical products and therapies. The company's Specialty Brands reportable segment's areas of focus include autoimmune and rare diseases in specialty areas like neurology, rheumatology, nephrology, pulmonology and ophthalmology; immunotherapy and neonatal respiratory critical care therapies; analgesics and gastrointestinal products. Its Specialty Generics reportable segment includes specialty generic drugs and active pharmaceutical ingredients."

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