S&P ups Mallinckrodt

S&P said it raised its long-term issuer rating on Mallinckrodt plc to CCC from SD on the agency’s view of heightened risk of a distressed exchange over the next year, before any large settlement of opioid claims.

Mallinckrodt completed a distressed exchange that swapped $706 million of various unsecured notes for $323 million of new, unrated 10% second-lien notes due 2025, reducing overall debt principal by about $383 million, S&P said.

“The transaction only reduces Mallinckrodt’s 2020 maturity by about $83 million or 12%, so we believe there is still elevated risk for another distressed exchange or a liquidity event in 2020 because the company has over $600 million of debt maturing in April and uncertain cash requirements from ongoing litigation,” S&P said in a press release.

The company does have positive free cash flow, but the threat of a large opioid settlement may limit the company’s access to capital markets to refinance debt maturities, the agency said.

The outlook is negative.

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