Magellan files disclosure statement, senior noteholders to be repaid in full

By Carlise Newman

Magellan Health Services filed its reorganization plan and disclosure statement in court Thursday, revealing, among other things, that senior noteholders will be repaid in full.

The company made a prepackaged Chapter 11 bankruptcy filing March 11 in the U.S. Bankruptcy Court for the Southern District of New York.

Under the plan, holders of the 9 3/8% senior notes due 2007, with $258.4 million in allowed claims including $8.4 million in accrued interest, will be repaid in full with new senior notes equal to the allowed claim.

Holders of the 9% senior subordinated notes due 2008, with $657.2 million in allowed claims, including accrued interest of $32.2 million through the commencement date, will receive 13.515 shares of new common stock, or 26.8% to 31.4% of full recovery

General unsecured claimants will receive a principal amount of new senior notes equal to the note distribution amount, and 9.701 shares of new common stock, for 48.3% to 51.6% of full recovery.

Senior secured lenders with claims of $236.1 million will receive 100% recovery through a new credit facility, comprised of:

* A rollover facility of $120.5 million, which includes un-reimbursed letter of credit disbursements and issued but undrawn letters of credit. Letters of credit outstanding under the rollover facility will remain outstanding.

* A term B loan of $57.9 million

* A term C loan of $57.9 million

The new senior notes will be unsecured obligations solely of the reorganized company and will not be guaranteed by any its subsidiaries. The notes will mature on Nov. 15, 2007, carry interest at 9 3/8%, payable on the same dates as the existing senior notes and will have substantially the same terms as the existing senior note indenture.

During the period from the effective date through Nov. 15, 2004, Magellan will have the option prior to any scheduled interest payment to either pay interest in cash or make a payment in kind. PIK payments will be at a rate of 10 3/8% up to and including Nov. 15, 2003 and 13 3/8 % for PIK payments from Nov. 16, 2003 through Nov.15, 2004. The new senior notes will be subordinated to the new senior secured obligations.

As part of the restructuring, Aetna and Magellan have agreed to renew their contract, and the company will continue as the provider of behavioral health care to Aetna's members for an additional two years, through Dec. 31, 2005. Magellan will pay $15 million of its current $60 million obligation to Aetna upon emergence from Chapter 11, and provide Aetna with an interest-bearing note for the balance, which will mature on Dec. 31, 2005. Aetna may extend the contract at its option through Dec. 31, 2006. If that occurs, one-half of the note will be payable on Dec. 31, 2005, and the remainder will be payable on Dec. 31, 2006.

Magellan said the restructuring plan will result in a viable long-term capital structure for the company that will serve to enhance its business and reduce its more than $1 billion of overall indebtedness by $500 million. Based upon the creditor support that already has been obtained, the Company believes that it can consummate the restructuring and emerge from Chapter 11 by the end of the third quarter of this calendar year.

Columbia, Md.-based Magellan Health Services is a behavioral managed care organization.

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