Levels for Magellan Health Services' bank debt have been falling over the past couple of weeks as the company worked to refinance its bank facility before Sept. 30 to avoid covenant violations. The company's term loan "B" has sunk from the 90s into the low 80s since the company announced that it is now pursuing a comprehensive capital restructuring plan with the help of Gleacher Partners, rather than a bank loan refinancing.
Since it was unable to secure a refinancing or an amendment, Magellan could now be in default of its current bank loan agreement. The company has stated that it intends to seek a wavier to the violated covenant and has admitted that, if it is not able to obtain the waiver and bank holders decided to accelerate maturities, Magellan would not have the liquidity needed to repay the debt. In addition, the uncertainties that surround the renewal of a contract with its largest customer, Aetna, also have been plaguing the company, one trader noted.
In response to a question regarding the probability that the company might pursue a pre-packaged bankruptcy plan, one trader said it's possible. The company is less than one times leveraged at the senior level, so all it would need to do is work out an agreement with the bondholders, he determined. Calls to Mark Demilio, cfo, were referred to a spokeswoman, who did not return calls by press time.