Mallinckrodt Intl Finance SA: To File Chapter 11 ?

We are seeing almost daily “revelations” that Mallinckrodt PLC is preparing to file for Chapter 11 “within weeks” and is feverishly negotiating a restructuring agreement with its lenders and creditors. The latest such article is from the Wall Street Journal on September 25, 2020 in its premium Pro Bankruptcy publication. While we don’t doubt the veracity of the carefully placed rumor – this is the WSJ after all – the BDC Credit Reporter has been quoting experts warning of an imminent bankruptcy filing for the pharmaceutical giant as far back as September 2019 and as recently as February 2020.

If and when a bankruptcy occurs, it’s going to be big news given the size of the business and the billions of dollars lent to the Ireland-headquartered company. Thankfully, the BDC sector will be almost completely unimpacted. Only one BDC – publicly-traded Barings BDC (BBDC) – has any Mallinckrodt exposure. As of June 30, 2020, BBDC had advanced $3.2mn to the company in a Term Loan due 9/1/2024. The BDC had discounted the debt by (25%) already, to $2.4mn. It’s even possible that BBDC – based on what we’ve seen in other troubled large company loans – has already divested itself of the Mallinckrodt position. We’ll learn if that’s the case when IIIQ 2020 results come out. Either way, the loss is likely to be modest for BBDC. The investment income at risk is less than ($0.100mn).

We have already rated the company CCR 4 and placed the name on the Weakest Links list since May 2020. The likelihood that the company will move to CCR 5 has grown a little stronger with the WSJ report, even if these reports seem carefully timed by participants in the process seeking some advantage.