Hedge Funds Seek to Cut Off $1 Billion Meant for Opioid Victims

livemint.com:

A group of hedge funds is devising a plan to cut off about $1 billion meant to help victims of opioid addiction, opening the way to keep some of the money for themselves. Mallinckrodt, one of America’s largest manufacturers of opioids, last year agreed to pay $1.7 billion to resolve thousands of lawsuits brought by state and local governments and opioid-addicted individuals, who accused the company of helping cause a public-health crisis.

The settlement funds, to be paid through 2030, were meant to help state health departments buy lifesaving overdose reversal drugs like Narcan and pay treatment costs for people who took prescription opioids. However, hedge funds that lent billions to Mallinckrodt are backing a plan for the company to get out of the deal with about $1.3 billion still unpaid, according to people familiar with the discussions.

A group of hedge funds, including Greenwich, Conn.-based Silver Point Capital, is in negotiations with Mallinckrodt’s board to give them control of the business through a bankruptcy filing, according to people familiar with the discussions. Other hedge funds that hold the company’s debt, including Bracebridge Capital and Alta Fundamental Advisers, have been negotiating with Mallinckrodt over its potential plans to file for chapter 11, according to public filings.

As part of a prearranged deal with the hedge funds, Mallinckrodt would propose to write off about $1 billion from what it still owes to addiction victims and state and local governments, while making a one-time payment of roughly $250 million, the people familiar said. The funds believe that Mallinckrodt promised too much when it agreed to the settlement, according to people familiar with the matter, and that the company’s