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Magellan Emerges From Ch. 11 Proceedings

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NU Online News Service, Jan. 6, 2004, 1:02 p.m. EST – Magellan Health Services Inc., Columbia, Md., a company that administers mental health care for one-quarter of all U.S. residents, emerged from Chapter 11 bankruptcy reorganization Monday.[@@]

The U.S. Bankruptcy Court in New York approved Magellan’s reorganization plan in October 2003, but the plan officially took effect Jan. 5.

The restructuring has reduced Magellan’s debt by about $600 million and added $150 million in new equity capital. The stock of the reorganized company now trades on the Nasdaq Stock Market under the symbol MGLN.

Magellan sought bankruptcy court protection in March 2003 because it had trouble covering payments on debt it accumulated in the 1990s.

“With our debt concerns behind us, we can completely focus management’s time and energy on our business and providing a platform for growth and enhanced service,” Steven Schulman, Magellan’s chief executive, says in a statement about the reorganization.

Deutsche Bank A.G., Frankfurt, organized a group of lenders that has supplied a $100 million term loan, an $80 million letter of credit and a $50 million revolving credit facility.

Onex Corp., Toronto, a Canadian buyout company, says it has organized a private equity fund, Onex Partners L.P., that has invested $101 million in the new Magellan in exchange for a 24% ownership interest.

“Onex has control of Magellan and is expected to itself be a 25% limited partner in Onex Partners,” Onex says.

Magellan says it has used the capital it raised to pay its old secured bank loans in full.

Holders of Magellan’s senior notes are getting a combination of $184.34 in cash and $933.82 in new notes for every $1,000 in old note principal, and holders of the company’s subordinated notes are getting 32.83 shares of the new common stock for every $1,000 in old note principal.

Magellan owes about $54 million to unsecured creditors. The unsecured creditors are getting $3 million in cash, $14 million in notes and 1.2 million shares of the new common stock.

Holders of Magellan’s old common stock and old preferred stock are getting common stock and warrants that will give them the right to buy more stock in the future.

Standard & Poor’s Rating Services, New York, has assigned a B+ counterparty credit rating to the new Magellan.

“Magellan’s key near-term challenges will include establishing a more stable and consistent earnings stream, fully implementing its operational improvement plan initiatives and improving the quality of its balance sheet,” S&P says in a comment on the rating.

If Magellan meets its earnings targets, it should have at least twice as much income as it needs to cover its debt payments, S&P says.