Mallinckrodt to de-lever, has ‘significant dry powder,’ ‘strong cash’

By Devika Patel

Knoxville, Tenn., Jan. 8 – Mallinckrodt plc intends to use its excess cash and adequate liquidity to de-lever over the course of 2018, but may draw on its revolver and pay it back down in increments if it needs extra short-term liquidity.

“From a capitalization perspective, our prioritization in 2018 is to de-lever the company, essentially reload our ability to do longer-term business development,” president and chief executive officer Mark Trudeau said at the JP Morgan 2018 healthcare conference in San Francisco on Monday.

“We still have significant dry powder, so therefore we want to continue to be opportunistic for business development in this year, but likely we would be doing smaller tuck-in things on an opportunistic basis throughout 2018 while we reload the balance sheet to do larger things, longer term,” Trudeau said.

The company has consistently paid off outstanding debt to keep its leverage ratio in the 3.5x to 4x range.

“We’ve gotten [our leverage ratio] down between the 3.5x and 4x very consistently,” executive vice president and chief financial officer Matthew Harbaugh said on the call.

“Our ability to de-lever in pretty rapid fashion is pretty significant as we enter 2018,” Harbaugh said.

Mallinckrodt expects to maintain its recent generation of cash, giving it no shortage of liquidity and the revolver is available if needed for more short-term liquidity.

“The business has generated strong cash throughout the course of the year and we anticipate that to continue,” Harbaugh said.

“We’ve made it very clear that we were going to draw on the revolver and that’s short-term liquidity, typically you draw on the revolver and then you pay it off and that signals the strength of the underlying cash flows,” Harbaugh said.

Due to poor spreads, the company bought debt on the open market last year and Harbaugh stressed that the company will keep looking for ways to address its debt.

“Not only do we look to pay off the revolver, but we also are very opportunistic. If you looked at last year, we were buying debt on the open market because the spreads didn’t make economic sense to us.

“You should look to us to be very judicious as to how we address the debt.

Mallinckrodt is a Dublin-based pharmaceutical company with U.S. headquarters in St. Louis.

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