NU Online News Service, March 11, 3:57 p.m. – Magellan Health Services Inc., Columbia, Md., has filed a Chapter 11 bankruptcy reorganization plan in New York.
Magellan, which administers mental health care benefits for 68 million people, or one-quarter of all U.S. residents, emphasizes that it has enough cash to fund its operations and meet all pre-Chapter 11 obligations to employees, care providers and customers.
The company says its reorganization plan would reduce its $1 billion debt load to about $500 million by using common stock in the reorganized company to pay off its major note holders.
- Holders of $625 million in secured notes due in 2008 would get most of the new common stock.
- Holders of the old Magellan preferred stock would get 2% of the new common stock.
- Holders of the old Magellan common stock would get 0.5% of the new common stock and warrants to purchase the new stock.
- Holders of $250 million in unsecured notes would get $250 million in new, unsecured notes.
- The banks, which have lent Magellan $235 million, would get $235 million in secured loans.
- Holders of most other general unsecured claims would get a combination of the new common stock and new unsecured notes.
Magellan says it has received approval for the reorganization plan from creditors holding 52% of its senior notes, 35% of its senior subordinated notes and 45% of its senior secured bank debt, and from Aetna Inc., Hartford, its biggest customer.
Aetna has supported Magellan by agreeing to use Magellan’s behavioral health services for at least two more years, until Dec. 31, 2005.
Magellan owes Aetna $60 million. The reorganization plan calls for Magellan to pay Aetna $15 million after emerging from Chapter 11 and for Magellan to pay the rest after Dec. 31, 2005.
Magellan hopes to get approval for the reorganization plan and emerge from Chapter 11 proceedings by Sept. 30.
The creditors have demonstrated their commitment to the plan by agreeing to invest $50 million in the company, Magellan says.
The company says it will use the $50 million investment for general corporate purposes.
Magellan included a statement of confidence from Mark Bertolini, Aetna’s senior vice president of specialty products, in its announcement of the reorganization plan filing.
“With regard to customer service, Magellan is meeting or exceeding our service targets,” Bertolini says in the statement.