Mallinckrodt voluntarily initiates Chapter 11 proceedings in bankruptcy court

Mallinckrodt announced that it has voluntarily initiated Chapter 11 proceedings in the U.S. Bankruptcy Court for the District of Delaware to modify its capital structure, including restructuring portions of its debt, and resolve several billion dollars of potential legal liabilities. Mallinckrodt and all of its subsidiaries are continuing to operate and supply customers and patients with products as normal. The entities that filed Chapter 11 petitions include Mallinckrodt, substantially all of its U.S. subsidiaries, including its specialty generics-focused subsidiaries and specialty brands-related subsidiaries, and certain of its international subsidiaries. The company intends to use the Chapter 11 process to provide a mechanism to implement a restructuring support agreement, or 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 $1.3B; 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, or FCA, lawsuit and an FCA lawsuit relating to Acthar's previous owner's interactions with an independent charitable foundation. 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 $1.3B. 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 litigation, or Opioid MDL, which has agreed to recommend that the more than 1,000 counties, municipalities, 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 $375M 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 $150M in cash and equity holders and non-guaranteed unsecured noteholders are expected to receive no recovery. 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 $1.6B in structured payments. A total of $450M would be received upon the company's emergence from Chapter 11; $200M would be received on each of the first and second anniversaries of emergence, and $150M 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 $1.551B. 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. 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 $260M over seven years and reset Acthar Gel's Medicaid rebate calculation as of July 1, 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. The current consolidated cash balance of the Chapter 11 filing entities is more than $650M. Together with cash generated from ongoing operations, this is expected to provide ample liquidity to support continued operations during the court-supervised process. The company has filed a number of customary motions seeking court authorization to continue to support its business operations during the court-supervised process, including the continued payment of employee wages and benefits without interruption. The company intends to pay vendors and suppliers in full under normal terms for goods received and services rendered on or after the filing date. The company expects to receive court approval for all of these routine requests. The company's foreign non-debtor affiliates will continue to operate their businesses in the ordinary course. Separating the specialty generics and specialty brands businesses remains one of Mallinckrodt's goals. The company will continue to evaluate strategic options for the Specialty Generics business at an appropriate time and when market conditions are favorable.