It looks like the shareholders will be wiped out and that allowed Opiod claimants will become the new shareholders. Set forth below are the terms of the Restructuring Support Agreement:
In connection with the Chapter 11 filing, the Company has entered into an RSA that provides for a financial restructuring designed to strengthen the Company’s balance sheet and reduce its total debt by approximately $1.3 billion, 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:
- Holders of approximately 84% of the Company’s guaranteed unsecured notes;
- 50 states and territories; and
- The court-appointed plaintiffs’ executive committee representing the interests of thousands of plaintiffs in the opioid multidistrict litigation1 (“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, at the end of the court-supervised process:
- 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 Company has reached an agreement in principle on the terms of an amended proposed settlement that would resolve opioid-related claims against Mallinckrodt and its subsidiaries and eliminate billions of dollars in alleged liabilities. The amended proposed settlement is supported by a broad array of opioid plaintiffs as detailed above.
Under the terms of the amended proposed settlement, which would become effective upon Mallinckrodt’s emergence from the Chapter 11 process, subject to court approval and other conditions:
- 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 Company will comply with an agreed-upon operating injunction with respect to the operation of its opioid business.
Copies of term sheets outlining the terms of the RSA and the amended opioid settlement, as well as materials with additional information relating to the Company and its Chapter 11 filing, are available on www.advancingmnk.com. The term sheets and additional materials are expected be filed as an exhibit to a Current Report on Form 8-K with the U.S. Securities and Exchange Commission tomorrow.
Resolution of Certain Acthar Gel-Related Matters
Mallinckrodt has reached an agreement in principle with certain governmental parties to resolve certain disputes relating to Acthar Gel. The agreement in principle is conditioned upon Mallinckrodt entering the Chapter 11 restructuring process. The Company has agreed to pay $260 million 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 Company 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.
If past is any indication of the future, it will be interesting to see how the settlement money won by the states will be spent. I will resist my inclination to step out and call this an outright money grab on the parts of the states but the facts are that states spend less than 3% of the tobacco settlement winnings on tobacco related health issues (no state spends the minimum recommended allocation for tobacco control proposed by the CDC) . I don’t foresee any reason why the opioid settlements will be any different. Let us not also forget that the FDA has controlled the spigot for pain-killers from day one. I can’t help but wonder if federal regulators prioritized the pharma companies over the public and now see an opportunity to refill their coffers and spend it in ways they see fit that will be completely unrelated to the opioid crisis. Payouts from big tobacco have mainly went to subsidize tax cuts and cover budget gaps. Whether or not this is appropriate I suppose is debatable if the intent is to solely hold these companies accountable for their actions but I think we there is a slippery slope when states get involved in lawsuits. Seems ironic that the proceeds from the settlements will likely be dependent upon the continuing economic health of the pharma companies and their sales.
If the question next is how do you profit off of this here is my trade idea (and yes it comes back to litigation funding) – through litigation funding you fund a law firm that is handling a mass tort lawsuit (on contingency likely) that is intending to hold the drug maker liable. The defendant would have to have a strong case in proving that the company violated its duty in marketing or manufacturing but clearly there are thousands of cases based on this assumption.