Is Mallinckrodt Running Out of Options?

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Mallinckrodt PLC (NYSE: MNK) is a pharmaceutical player that has been in trouble over its role in the opioid crisis in America. With its shares down 90% or so in the past year, and even far worse than that from its peak in 2015, investors have to wonder if the worst outcome is in the making.

On a day when the broad market is trading higher, Mallinckrodt shares were down almost 9% and the stock was approaching $3, before recovering from its lows of the day. At issue is that Mallinckrodt has drawn down the remainder of its credit line.

A subsidiary of the company drew down $95 million of its revolving credit line, which matures in February of 2022, and the filing indicated that there are no remaining funds available under that credit facility.

Wall Street may be interpreting this as the company’s last-ditch effort to grab as much cash as it can while it still has cash to grab. Mallinckrodt is party to many legal suits around the opioid crisis, and it is also party to perhaps countless shareholder class action suits. The company had almost $350 million in cash and equivalents at the end of 2018, and that was down to $241 million as of June 30, 2019. This is down from over $1.2 billion in cash at the end of 2017.

The company also still has high debt levels. Its long-term debt of $4.82 billion as of June 30, 2019, was down from $5.81 billion the prior quarter and down from $6.07 billion at the end of 2018.

An SEC filing earlier in the days said:

On August 28, 2019, MEH Inc., a wholly owned indirect subsidiary of Mallinckrodt plc (“Mallinckrodt”), borrowed $95.0 million as a revolving loan (the “Revolving Loan”) under the revolving credit facility (the “Revolving Credit Facility”) established pursuant to that certain Credit Agreement, dated as of March 19, 2014 (as amended, supplemented or otherwise modified, the “Credit Agreement”), among Mallinckrodt, Mallinckrodt International Finance S.A., Mallinckrodt CB LLC, the lenders party thereto and Deutsche Bank AG New York Branch, as administrative agent. Pursuant to the terms of the Credit Agreement, the Revolving Loan matures on February 28, 2022, and is prepayable prior to such date, in whole or in part, without premium or penalty at the election of the borrowers. After giving effect to the incremental borrowing of the Revolving Loan, there is no remaining availability under the Revolving Credit Facility.

As for the use of funds, the filing said:

The revolver draw provides increased liquidity to Mallinckrodt for general business purposes and to address cash needs that may arise in the future.

Mallinckrodt shares were trading down 9.2% at $3.195 on Thursday, in a 52-week range of $3.11 to $34.81. The market cap is now down to just $268 million — from a company that generated $3.2 billion in annual sales in 2018 and in 2017.


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