Mallinckrodt releases details on new term loan, amendment proposal

By Sara Rosenberg

New York, March 12 – Mallinckrodt is offering existing term loan lenders the option to participate in $310.3 million of its proposed new $690 million term loan due March 2024 with the balance to be provided by some senior noteholders, according to an 8-K filed with the Securities and Exchange Commission on Thursday.

Pricing on the new term loan is Libor plus 650 basis points with a 0.75% Libor floor, and the debt has call protection of 103 in year one, 102 in year two and 101 in year three.

Amortization on the new term loan is 5% per annum.

Financial covenants include a 4x first-lien net leverage covenant.

Transaction payments are a 2% backstop payment payable in cash to some backstop parties, and a 2% commitment payment payable to all participating lenders including backstop parties.

As previously reported, the company also launched on its 11 a.m. ET lender call an amendment to its existing credit facilities that would, among other things, allow the implementation of a global settlement to resolve all opioid-related claims as well as permit new money financing and an exchange offer to address some near-term maturities.

The company’s existing credit facilities consist of a $900 million revolver due February 2022, a $1.517 billion term loan due September 2024 and a $403 million term loan due February 2025.

The amendment to the existing term loans would increase pricing by 100 bps to Libor plus 375 bps on the 2024 term loan and Libor plus 400 bps on the 2025 term loan, add 101 soft call protection for one year, step-up amortization to 2% per annum from 1% per annum, and enhance the covenant package, including adding a provision for a 4x first-lien net leverage covenant to the previously covenant-lite term loans and materially reducing capacity available under some baskets.

The revolver amendment would revise the financial covenant to 4x first-lien net leverage from 5x net total leverage springing at 25% utilization.

Furthermore, the amendment would modify the excess cash flow sweep and waive the “going concern” or similar financial reporting qualification.

Lenders are being offered a 50 bps amendment fee.

Deutsche Bank Securities Inc. is the administrative agent on the deal.

Commitments from existing lenders are due at 5 p.m. ET on Monday.

Up to $615 million of the new term loan will be used to refinance the company’s 2020 notes, and the remainder will be used for accrued and unpaid interest on the 2020 notes and for general corporate purposes.

In addition to participating in the financing to redeem the April 2020 notes, certain senior noteholders have agreed to tender their 5¾% senior notes due August 2022 in exchange for up to $610 million of new 10% second-lien notes due April 2025 on a par-for-par basis.

If there is less than $610 million of new second-lien notes issued in exchange for 2022 notes, then noteholders will have the right to exchange their 2023 notes into the new second-lien notes at 90% of par as long as the aggregate amount of new second-lien notes issued does not exceed $610 million.

The target launch for the 2022 notes exchange is March 19 and the expiration is anticipated on April 16.

Closing of the amendment and term loan funding is expected on March 19.

Net leverage is expected at 3.5x, first-lien net leverage is expected at 2x and secured net leverage is expected at 2.7x.

Mallinckrodt is a Staines-Upon-Thames, U.K.-based developer, manufacturer and marketer of specialty pharmaceutical products and diagnostic imaging agents.

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