NU Online News Service, Jan. 16, 11:43 a.m. – Magellan Health Services Inc., Columbia, Md., says the state of Tennessee has hurt its efforts to restructure its debts.

Magellan, a company that manages mental health care and substance abuse treatment for one-quarter of all U.S. residents, has been struggling to cope with the effects of past operating problems. Default provisions in a major credit agreement give Magellan’s lenders the right to ask it to pay them back early.

Magellan persuaded the lenders to waive the default provisions in late 2002, but that waiver expired Wednesday. Magellan has been trying to negotiate a second waiver.

Tennessee has interrupted those plans by getting an order giving it the right to seize a subsidiary that serves poor Tennessee residents, Magellan says.

Although the Tennessee subsidiary continues to operate, the seizure order has triggered default provisions in the credit agreement and slowed negotiations with the lenders, Magellan says.

Magellan is still trying to persuade Tennessee officials to vacate or withdraw the seizure order, the company says.

Magellan’s “business is operating as usual and the company continues to pay its providers, customers and employees in the ordinary course of business,” Magellan says.

The company “continues to be committed to achieving a successful debt restructuring and will take all appropriate steps to achieve this goal while protecting the interests of its providers, customers and employees,” Magellan adds.

But, although Magellan is still trying to obtain a second default-provision waiver and overturn the Tennessee seizure order, “there can be no assurance that the company will be successful in either of these efforts,” Magellan warns.