Millennium Health Lenders Said Sparring Over Bankruptcy Plan

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  • Some holders of lab tester's loans said to want higher payout
  • Current equity owners would cede control, pay U.S. settlement

Millennium Health LLC is struggling to wrangle enough support for a debt restructuring plan that would allow it to settle a federal billing probe by a deadline this week, according to two people with knowledge of the matter.

Some lenders that bought the biggest U.S. drug-testing lab’s $1.8 billion loan at or near face value are demanding a bigger payout from shareholders, which include private-equity firm TA Associates, said the people, who asked not to be named because the discussions are private. They want to extract more while other lenders who purchased the debt at deeply discounted levels are willing to accept less, the people said.

Millennium is negotiating the terms for a bankruptcy filing at the same time that it’s finalizing a $275 million settlement of a federal investigation into its billing practices, people with knowledge of the talks said last week. The U.S. Department of Justice has said it must have a plan to pay the sum by the end of this week, the people said.

Settlement Options

One option being explored is for the settlement to be funded by the current equity holders, who would hand control of the company to the lenders as part of the restructuring plan, the people with knowledge of the talks said. In exchange, lenders would have to agree not to pursue potential legal claims against the owners that the federal probe wasn’t disclosed directly to investors while it was marketing the loan last year, the people said. Those owners include founder James Slattery and TA Associates.

Nicole Beckstrand, a spokeswoman for Millennium, said in an e-mailed statement that the company doesn’t “comment on rumors or speculation.” Marcia O’Carroll, a spokeswoman for TA Associates, and Nicole Navas, a Justice Department spokeswoman, declined to comment. Beckstrand declined to make Slattery available for comment.

The provider of urine-testing services to monitor prescription drug use and potential abuse has come under fire for not being upfront about impacts its business would face as a result of the investigation. Millennium has said it disclosed the probe to “pertinent parties” and that it was also cited in media reports and legal filings. JPMorgan Chase & Co., the agent on the loan, wasn’t required by law to disclose the probe to potential lenders because Millennium told the bank it wasn’t material at the time, a person with direct knowledge of the matter said in July.

Higher Payout

Some lenders who bought the loan at or around par believe they could receive a higher payout from shareholders if the creditors pursued their contention that Millennium should have disclosed the federal probe when it sold the debt, the two people with knowledge of the talks said. Most of the loan was used to fund a $1.27 billion dividend to Millennium’s management team and TA Associates.

Another option for funding the settlement that had been discussed earlier was for Millennium’s creditors to provide the company with at least some of the required $275 million as part of a bankruptcy proposal, the people said.

The lenders are advised by law firm Brown Rudnick LLP and FTI Consulting Inc. Marcia Brier, a spokeswoman for Brown Rudnick at MCB Communications, didn’t respond to messages seeking comment. Nicole Madison, a spokeswoman for FTI, didn’t provide comment.

Lenders earlier this month installed Wilmington Savings Fund Society FSB as their new administrative agent after JPMorgan relinquished the position, people with knowledge of the matter said last week. JPMorgan arranged the loan in April 2014.

Traders pushed down bids for the loan by almost 2.9 cents to 30.38 cents on the dollar Wednesday from around 33.25 cents Sept. 29, according to pricing quotes from Markit Ltd. The loan had been quoted with a bid of 48.8 cents on Aug. 28, according to Markit data.