NU Online News Service, May 28, 2003, 12:57 p.m. EDT – Onex Corp., Toronto, has agreed to invest between $100 million and $200 million in Magellan Health Services Inc., Columbia, Md.
Magellan, a company that runs mental health and drug treatment programs for one-quarter of all U.S. residents, filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code in March.
Magellan had been counting on $50 million in financing from some of its big unsecured creditors to help it reorganize and wipe out about half of its $1 billion in debt.
The new financing agreement should help Magellan give more cash to its creditors, the company says.
The financing agreement is subject to the approval of the U.S. Bankruptcy Court in New York, but the agreement already has the support of the official unsecured creditors committee, Magellan says.
Aetna Inc., Hartford, Magellan’s biggest customer, also has blessed the agreement, Magellan says.
The Onex agreement calls for Onex to invest $100 million in the reorganized Magellan in exchange for new Magellan stock. Onex would end up with about 29.9% of the outstanding common stock of the reorganized Magellan.
Magellan will also be offering new Magellan stock and rights to purchase the new stock to general unsecured creditors and holders of note claims. Onex has agreed to buy up to $100 million of the stock that the unsecured creditors and note holders reject.
If creditors snap up the new Magellan stock, Onex could invest as little as $100 million, but Onex could invest as much as $200 million if creditors shun the new Magellan stock, Magellan says.
Onex will start out with 50% of Magellan’s common stock voting rights, and it will be able to keep its voting rights even if it sells some of its shares, Magellan says.