Pharma firm Mallinckrodt looks to bankruptcy to avoid $1B in opioid payouts
After agreeing to pay $1.7 billion to resolve lawsuits with opioid victims last year, the drug maker and its creditors are working to avoid opioid-related payments, as part of a second bankruptcy.
Generic opiate manufacturer Mallinckrodt and its creditors are moving closer to a deal that would provide opioid victims with a $250 million one-time payment, in a move that would leave them with $1 billion less than they were promised last year.
The proposal being discussed would also hand control of the troubled pharmaceutical company to first-lien lenders as part of a second bankruptcy, according to people with knowledge of the situation. Talks are ongoing and plans could change, they added.
Last year, Mallinckrodt agreed to pay $1.7 billion to resolve lawsuits brought by state and local governments and opioid-addicted individuals. Creditors including states, hospitals, tribes, individuals and others hurt by the opioid crisis already received $450 million last year. The payment under consideration would hand them $700 million total, far short of the $1.7 billion initially promised to the group over eight years.
The proposal calls for first-lien and second-lien creditors — who rank ahead of the opioid victims in line for repayment — to receive equity in the drugmaker, with the first-lien lenders receiving a majority stake in the reorganized company, said the people, who asked not to be identified because the negotiations are private.
Representatives for Mallinckrodt, company adviser Guggenheim Securities LLC and Houlihan Lokey Inc., which is representing the opioid master disbursement trust, declined to comment.
Lenders could also see some of their holdings reconfigured into new debt from the reorganized company, the people added. The Wall Street Journal earlier reported on elements of the plan.
Related: Generic opioid manufacturer agrees to $1.6B global settlement
Mallinckrodt also started negotiations with a group of 10% first-lien noteholders over a make-whole premium, a type of additional payment creditors are owed when debt is paid off early. The parties are discussing how large the make-whole payment would be. Some creditors have calculated that it could be as high as 135 cents on the dollar if the dispute isn’t resolved, the people said.
A bankruptcy judge ruled in 2021 that the company didn’t have to pay about $94 million of make-whole premiums on its debt, but that decision is under appeal.
Davis Polk & Wardwell, which is representing some of the noteholders, didn’t return requests for comment. A group of first-lien lenders is working with law firm Gibson Dunn & Crutcher, while Perella Weinberg Partners and Paul Weiss Rifkind Wharton & Garrison are representing creditors with holdings in both the company’s first-lien and second-lien loans. A representative with Perella Weinberg declined to comment, while messages left with Gibson Dunn and Paul Weiss were not returned.
Mallinckrodt, which in 2020 was the third major drugmaker to file for bankruptcy after being swamped by claims that it helped fuel the US opioid epidemic, fell back into distress almost immediately after it exited bankruptcy protection in 2022. Though the company shed a quarter of its debt in Chapter 11 and reached a deal to pay $1.7 billion to settle opioid claims, it has since missed earnings projections amid disappointing sales of its blockbuster drug, Acthar Gel.
On June 30, the company delayed a $200 million payment to the trust charged with distributing the settlement funds and has since received several forbearance extensions. It said in a regulatory filing on Monday that it remains in discussions with creditors and hasn’t yet made a decision about another bankruptcy filing.
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