Rotech Healthcare files pre-packaged Chapter 11 bankruptcy petition

By Caroline Salls

Pittsburgh, April 8 - Rotech Healthcare Inc. made a pre-packaged Chapter 11 bankruptcy filing Monday in the U.S. Bankruptcy Court for the District of Delaware as the next step toward completing its debt reduction and restructuring, according to a company news release.

The plan is supported by consenting holders of a majority in outstanding principal amount of the company's 10¾% first-lien secured notes and 10½% senior second-lien secured notes. Once it is confirmed, Rotech said it expects to have eliminated about half of its secured debt.

"Today's actions will enable us to create a capital structure that will provide a foundation for sustained profitability and future growth," president and chief executive officer Steven P. Alsene said in the release.

"This effort is being undertaken to fix our balance sheet and will not affect our operations.

"Given the support of our secured stakeholders, we expect the reorganization process to conclude quickly."

With widespread consensus among its key stakeholders, Rotech said it expects its plan to be confirmed and its reorganization to be completed within 90 to 150 days.

According to the release, all of Rotech's debt was placed on the company when it was spun off from its former parent company in 2002. The company was a part of Integrated Health Services.

The company said its pre-packaged plan calls for full payment to trade creditors and vendors on the effective date for any pre-bankruptcy obligations and entrance into a vendor support agreement to maintain or reinstate payment terms comparable to those that existed before the bankruptcy filing.

As an added layer of protection, Rotech said it has requested court approval to pay pre-bankruptcy obligations in the ordinary course of business for some trade creditors and vendors who enter into the vendor support agreement.

Plan terms

Treatment of creditors under the proposed plan will include the following:

• The holders of Rotech's $23.5 million term loan and its $230 million of 10¾% first-lien secured notes will receive their share of an amended and restated term loan;

• The 10½% second-lien secured notes will be converted into 100% of the common equity of the reorganized company, thereby eliminating in excess of $300 million of secured debt;

• Trade creditors and vendors who agree to maintain or reinstate payment terms that existed before the bankruptcy filing will be paid in full; and

• All of the company's outstanding shares will receive a distribution of $0.10 per share, provided that the total amount paid on account of the interests does not exceed $2.62 million.

DIP financing

In conjunction with the bankruptcy filing, Silver Point Finance, the holder of Rotech's existing $23.5 million term loan, has agreed to provide up to $30 million of debtor-in-possession financing.

The DIP financing will be used for ordinary working capital purposes and to ensure normal operations during the Chapter 11 process.

The facility will mature on the earliest of seven months from the bankruptcy filing date, acceleration of the DIP loans and the effective date of the company's plan.

Interest will be either the prime rate plus 750 basis points with a 3% floor or Libor plus 850 bps with a 2% Libor floor.

The company is seeking interim access to $25 million of the DIP financing.

Debt details

Rotech listed $100 million to $500 million of total assets and $500 million to $1 billion of total debt on its bankruptcy petition.

The company's largest unsecured creditors are

• Resumed Corp. of San Diego, with a $13.24 million trade claim;

• Respironics Inc. of Pittsburgh, with a $7.31 million trade claim;

• Invacare Corp. of Elyria, Ohio, with a $2.17 million trade claim; and

• Sunovion Pharmaceuticals Inc. of Marlborough, Mass., with a $1.1 million trade claim.

Rotech's equityholders include Wynnefield Partners Small Cap Value LP and related parties, Deutsche Bank AG, London Branch, Deerfield Capital, LP/James E. Flynn and related parties, Venor Capital Management and related parties, Jeffries Group, Inc. and related parties and Robeco Investment Management, Inc.

According to an 8-K filed with the Securities and Exchange Commission, the bankruptcy filing constituted an event of default on the company's $23.5 million term loan credit agreement, its $230 million of 10¾% senior secured notes due 2015 and its $290 million of 10½% senior second-lien notes due 2018.

Proskauer Rose, LLP is the company's legal adviser, Barclays is financial adviser, and AlixPartners is restructuring adviser.

Rotech is an Orlando, Fla.-based provider of home medical equipment and related products and services. The Chapter 11 case number is 13-10741.

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