Mallinckrodt Judge Blocks Noteholder Bid For $100 Million Payout

A federal judge on Friday dealt a blow to holders of senior Mallinckrodt Plc. notes who claim they’re owed a make-whole payment as part of the drugmaker’s bankruptcy.

U.S. Bankruptcy Judge John Dorsey in a virtual hearing overruled an objection to Mallinckrodt’s bankruptcy exit plan brought by a group of creditors including Aurelius Capital Management. They said the deal unfairly strips certain debt holders of a cash payment triggered by Mallinckrodt’s bankruptcy filing.

The notes at issue account for about $500 million of Mallinckrodt’s more-than $5 billion debt load. The noteholders said they’re contractually entitled to a nearly $100 million ...