Magellan Health Services Inc., the nation's largest provider of mental-health care, filed for Chapter 11 bankruptcy protection yesterday in an attempt to reduce almost $1 billion in debt.

The Columbia-based company said key creditors agreed to a restructuring plan that would reduce Magellan's debt by $500 million and pull it out of bankruptcy by fall.

The company's current shareholders would retain only 0.5 percent of the company. Magellan stock, which reached $9 a share last year, has traded for less than $1 since August and closed yesterday at 4 cents.

Magellan's chief executive, Steven J. Shulman, said yesterday's filing will result in no layoffs and will not affect its services to 67.4 million people through managed-care and employee assistance programs. Magellan has contracts with 2,300 health insurers, government agencies, unions and businesses.

"There will be no hiccups," Shulman said in an interview after a conference call with the company's 5,000-plus employees. The company has laid off several hundred employees in recent years.

Magellan listed $998.9 million in assets and $1.47 billion in liabilities, including more than $1 billion in bank and bond debt, in papers filed with U.S. Bankruptcy Court in New York. Most of the debt was amassed in the late 1990s as the company borrowed to expand and finance acquisitions.

Magellan said the reorganization plan is supported by 52 percent of its senior bondholders, 35 percent of its subordinated bondholders and holders of 45 percent of its bank debt. "We just got to a point where we agreed to disagree," Shulman said of those that opposed reorganization. "We'll work this out through the bankruptcy process. We're not that far apart."

Charles Titterton, an analyst for Standard & Poor's Corp., said Magellan's failure to get some key creditors to support the plan could be a problem. "It's not at all certain that this will be a successful filing," he said.

But the company's plan would allow for orderly repayment to Magellan's creditors rather than through the company's liquidation and would leave the company with cash to run its operations, Titterton said.

Shulman said some creditors have pledged to invest $50 million in Magellan. "They could have taken that money and put it into bonds, put it into Microsoft," he said. "That's new money. Cash is king. To make a decision to put that much money into a company really sends a strong vote of confidence in this management team and the prospects for Magellan."

Shulman joined the company in December, replacing Daniel S. Messina, who resigned in November after a year as chief executive. Shulman previously headed Prudential HealthCare Inc. and co-founded Value Health Inc. Shulman's managed-care credentials should strengthen customer confidence in Magellan, said Thomas H. Shinkle Jr,, a debt analyst with Imperial Capital LLC of Beverly Hills, Calif.

"He knows what success looks like," Shinkle said.

Shulman said that during the conference call with employees, 800 of whom work in Columbia, "I just painted a picture that is accurate."

"I'd rather not be in a Chapter 11. But given where this company was positioned this is the best outcome," he said.

Aetna Inc. yesterday agreed to extend its Magellan contract through 2005.

Until yesterday, Aetna, which provides medical services to 13.7 million people, had not said whether it would renew the contract, which was to expire at the end of this year. Some analysts called the contract vital to Magellan's survival.

The contract calls for Magellan to establish three customer-service call centers dedicated to Aetna members. Magellan also must give Aetna $15 million and a $45 million interest-bearing note after the bankruptcy proceedings, according to the agreement.

Aetna said the new agreement is subject to bankruptcy court approval and the successful completion of Magellan's restructuring.

"Magellan is still doing a good job with its providers," said Eliezer J. Radinsky, an analyst for Jefferies & Co. of New York. "Once Magellan has its feet firmly planted on solid ground, I think it will be more competitive. The Aetna renewal is also a sign of confidence."

Magellan also has lost some business, including a subcontract to manage behavioral-health care for the Tricare program, which provides medical insurance for dependents of military personnel. The contract was worth about $90 million in revenue, Shinkle wrote in a report last month.

Staff writer Sabrina Jones and researcher Richard S. Drezen contributed to this report.