Magellan Health Services said yesterday that a federal bankruptcy court judge had approved its disclosure statement, the step in the corporate-bankruptcy process that leads to a vote by creditors on a plan to reorganize a company.
The bankruptcy judge's approval of this disclosure statement is just one of several steps remaining ahead of Magellan as the Columbia mental health insurer works to emerge from federal bankruptcy protection.
However, if all goes according to plan, the firm could be in U.S. Bankruptcy Court in Manhattan as early as Oct. 8, asking a federal judge to give final approval of its reorganization plan.
"We are extremely pleased to be able to formally present our plan for restructuring and significantly improving Magellan's capital structure to our creditors," Steven J. Shulman, chief executive officer of Magellan, said in a statement.
"[When] we emerge [from Chapter 11 bankruptcy protection], Magellan will have a much stronger capital structure to go along with our existing strong market leadership position and operations."
Magellan, which provides mental health and employee-assistance treatment for about 65 million people, filed for Chapter 11 federal bankruptcy protection in March.
The company had amassed about $1 billion in debt via a 1990s acquisitions spree, later disposing of businesses that didn't mesh with its central strategy.
The plan of reorganization, if consummated, will halve Magellan's debt to $500 million and infuse it with $150 million in new equity from an outside investor, according to both the company and published reports.
According to Magellan, the Official Committee of Unsecured Creditors appointed in the Chapter 11 case has endorsed the plan and is "strongly recommending" that all creditors vote in favor of the reorganization.
Insurance giant Aetna, Magellan's largest client, also has approved this plan, according to Magellan.
The disclosure statement approved yesterday carefully details the plan, outlines how various categories of creditors will be compensated, and also establishes the timeline and deadlines for voting.
Magellan plans to start soliciting acceptances of the reorganization plan on or about Aug. 29. Creditors will have until Sept. 30 to accept or reject the plan.
Different classes of creditors are to be compensated in different ways. Even so, creditors in the Magellan bankruptcy in general are expected to fare better than most debt-holders in corporate bankruptcy cases.
Even unsecured creditors are avoiding the deep losses that are typical of the bankruptcies of the past two decades.
For instance, the plan calls for some bank-debt creditors to be repaid in full, or their loans to Magellan will be rolled over. And bondholders, depending on whether they are secured or unsecured, will get new debt notes or shares in the "new" Magellan, according to the company.