Well, that was fast. Just one day after the BDC Credit Reporter – informed by the Wall Street Journal – heard Mallinckrodt was beginning negotiations with its vast array of creditors, a deal has been done. Besides agreeing a settlement with ” 47 states and U.S. territories and lawyers representing thousands of local governments”, the pharmaceutical firm at the center of the opioid crisis has also worked out a deal with its lenders. Apparently that involves swapping out existing debt for longer dated debt. Part of the overall arrangement is a trip to bankruptcy court for the U.S. subsidiary of the Dublin-based company, but the parent will not be filing.
There’s a lot to unpack here, but given the relatively small BDC exposure, we don’t have to. Suffice to say that Barings BDC (BBDC) – if it still has a position – will probably continue to accrue income on its debt after the swap occurs. Unknowable is whether the BDC will have to write-off a portion of its debt because of the maturity swap, or be able to write-up its investment given the settlement. In either case – good or bad – the impact on the BDC will be modest and a credit shadow removed.
Of course, agreeing a deal and closing a deal are two different things. Much can happen in Chapter 11 that a company might not have expected but given the buses full of creditors who’ve been involved in this negotiation, we’re more optimistic than usual. We’ll now await both BBDC latest results and the exit from bankruptcy to be able to tie this up.