Magellan Health receives $150 million equity commitment from Onex

By Carlise Newman

Chicago, May 28 - Magellan Health Services Inc. has obtained a commitment for an equity investment of up to $150 million from Onex Corp. upon emerging from Chapter 11.

The $150 million investment will replace a previous $50 million equity commitment from unsecured creditors, providing the reorganized company with a stronger balance sheet than it would have had under the prior commitment, Magellan said.

Under the commitment, Toronto private equity firm Onex will invest $100 million in the reorganized company in exchange for new equity representing 29.9% of the outstanding common equity of reorganized Magellan.

In addition, Onex will back stop by up to $50 million a rights offering to unsecured creditors or noteholders, who will be offered the equity by the company under the reorganization plan. The rights offering will cover 14.9% of the equity of the reorganized company.

The reorganization plan will be amended to allow holders of unsecured claims to receive cash rather than a portion of the shares of reorganized Magellan that they would otherwise be entitled to receive, up to $50 million for the class.

Holders who elect the cash option will receive their share of up to $50 million in cash, which will reduce their distribution of Magellan common stock proportionally, based on an equity valuation of reorganized Magellan of $150 million. The cash payment will be funded by Onex and by general unsecured creditors and holders of note claims who participate in purchasing the shares.

Of the $150 million from Onex, $25 million will be used to make a cash distribution to unsecured creditors and senior noteholders in lieu of distributing new senior subordinated notes. The cash distribution will reduce the principal amount of the notes that otherwise would have been distributed under the plan.

If creditors choose the cash option and no creditors participate in the rights offering or to purchase equity in connection with the cash option, Onex would make a total equity investment of $200 million in equity in the company. If no creditors elect the cash option and creditors participate fully in the rights offering, Onex's total investment would be $100 million.

The equity Onex acquires initially will have 50% of the voting rights. Onex also will have the right to elect three of the seven directors of the company, common equity holders other than Onex will have the right to elect two directors, and all common equity holders voting will have the right to elect two directors.

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

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.