On September 3, 2019, one of the 15 analysts covering publicly traded opioid pharmaceutical manufacturer Mallinckrodt Plc (ticker: MNK) suggested a bankruptcy filing is”possible”, according to a financial publication. This sounds plausible as the company has “more than $5 billion of debt, most of which will start to come due in 2020, according to Bloomberg“. The publication added that “the company recently announced that it borrowed the final $95 million on its revolving credit line, meaning that it has no more capacity to borrow“. Showing how dire conditions have become Reuters reported the company has hired restructuring firms, including two of the usual suspects in this situation, Latham & Watkins and Alix Partners.
Of all that $5.0bn of debt, there is only $11.2mn at cost held by a BDC, and that’s Barings BDC (BBDC). This was supposed to be a “safe as houses” position for BBDC, priced at just LIBOR + 2.75%. At June 30, 2019 the position was valued at 90% of cost. However, based on Advantage Data’s real time loan pricing we know this debt is now trading at 77 cents on the dollar and could drop lower given the many lawsuits pending against the business and the myriad uncertainties facing the segment, even if a restructuring becomes possible.
Should Mallinckrodt Plc end up in bankruptcy or restructured, the NAV or income loss to BBDC will be modest but will be one of the first credit reverses since the new external manager took over and renamed Triangle Capital (TCAP).