Mallinckrodt liquidation would trigger $5.2bn financial hole, court told

Creditors of Mallinckrodt, the Dublin-based but US-run drugmaker, would face a $5.24 billion (€4.6 billion) financial shortfall if the Irish High Court does not approve a debt restructuring plan and the company succumbs to liquidation, the court has been told.

An independent expert's report backing up the court's appointment on Monday of an interim examiner to Mallinckrodt, written by Deloitte partner Mark Degnan, said a debt overhaul plan in line with one sanctioned by a Delaware court earlier this month provides a better outcome for creditors than a wind-up.

“A liquidation of the company would result in a significant deficiency in the region of $5.2 billion (€4.6 billion),” Mr Degnan said in the report, drawing on estimates from US consultancy firm AlixPartners, who have been advising Mallinckrodt.

“When comparing the estimated outcome position, the reorganised [Mallinckrodt’s] emergence as a going concern, which is one of the key assumptions on which the valuation analysis is based, is more advantageous to the creditors of the company as a whole.”

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Interim examiner

Mr Justice Michael Quinn agreed on Monday to appoint Michael McAteer of Grant Thornton Ireland as interim examiner to Mallinckrodt in order to execute a drawn-out restructuring plan that has been shaped in the US after the group filed for bankruptcy in Delaware in late 2020.

Mr Degnan, who is among three Deloitte restructuring partners who recently handed in their notice to set up an Irish operation of UK-based debt restructuring boutique Interpath Advisory, said Mallinckrodt had a “reasonable prospect of survival”. This is a prerequisite for an examiner to be appointed.

Under the protection of the US court, it agreed to a $1.7 billion settlement with 47 states and territories to resolve claims over its role in the opioid crisis. It also agreed to pay the US government $260 million to absolve a claim that it underpaid rebates on Acthar Gel, a hormone treatment to relieve inflammation.

The reorganisation plan, which will reduce its debt by $1.3 billion, was confirmed by the US bankruptcy court of the district of Delaware earlier this month, paving the way for it to endorsed or tweaked by the examinership process. Existing shares will be wiped out under the bankruptcy plan, while guaranteed unsecured bondholders are exchanging debt for ownership of the restructured business.

Mr Degnan noted in his report that the debt overhaul plan has the support of its highest-ranking secured lenders, holders of 84 per cent of the group’ unsecured bondholders, and 50 US states and territories and a committee representing opioid litigants.

Risk of opposition

Brian Kennedy SC, instructed by Arthur Cox, which is advising on Irish legal aspects of the restructuring plan, told the court that there was "at least a risk" that there would be some opposition to the petition but he did not know if this would occur or what the nature of that opposition might be.

A small group of dissident shareholders, led by New York-based asset-management firm Buxton Helmsley, said last summer they would seek to air claims that their rights as shareholders were suppressed under the Chapter 11 proceedings when the case made it to the Irish High Court.