Magellan Health emerges from bankruptcy still No. 1

Mental services insurer cut $1 billion debt in half

January 06, 2004|By M. William Salganik | M. William Salganik,SUN STAFF

Magellan Health Services Inc. of Columbia, the nation's No. 1 mental health insurer, emerged from bankruptcy yesterday.

"It will be easier for the company to compete for business now that we are formally out of Chapter 11," said Erin S. Somers, a Magellan spokeswoman. The completion of the reorganization will also allow management to focus time and attention on development and growth, she said.

When the company filed for reorganization in March, it was providing mental health benefits for about 68 million people. Today the number is down to about 60 million. Somers said most of the change can be traced to a decline in membership at Aetna, Magellan's largest customer, and to a change in the way members are counted.

Magellan has about 4,620 employees nationally. About 684 of them are in Columbia, at corporate headquarters and two call centers. Magellan has announced plans to move its headquarters to Connecticut, which will be the base for the chief executive officer and some other top executives, but the company will retain much of its corporate functions in Columbia.

Magellan functions as a sort of mental health HMO. Its revenue - about $1.6 billion a year - derives from fees or premiums paid by health insurers, employers and government agencies. In return, Magellan contracts with therapists and hospitals. When its 60 million members receive mental health care, Magellan pays the claims.

A spate of acquisitions in the late 1990s left the company more than $1 billion in debt. When the acquisitions proved less profitable than expected, the company had trouble meeting debt payments.

Magellan filed voluntarily for reorganization, using the bankruptcy process to give some of its creditors stock in the reorganized company, in exchange for about half the debt.

Magellan already had some key aspects of the reorganization in place when it filed, and its final plan was approved in U.S. Bankruptcy Court in October.

Under the restructuring plan, Onex Corp., a Toronto investment company, put $100 million into the company, giving it 8.4 million shares of multi-vote common stock, which will give it half of stockholder voting power.

An additional 26.9 million shares of stock in the reorganized company went to former creditors. And 114,165 shares go to stockholders in the pre-bankruptcy Magellan - one share for each 310 shares of the old stock.

The reorganized company expects trading in its shares to begin today on the Nasdaq exchange under the ticker symbol MGLN.

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