Rotech equity committee: Strategy destroys equity to spare noteholders

By Jim Witters

Wilmington, Del., July 15 - Rotech Healthcare Inc.'s bankruptcy strategy is designed to destroy the value of existing equity to protect the investment of second-lien noteholders, including former CEO Philip L. Carter, the official equity committee said during a July 15 hearing in the U.S. Bankruptcy Court for the District of Delaware.

Carmen H. Lonstein, representing the equity committee, is seeking to delay a July 29 valuation hearing and the Aug. 20 Chapter 11 plan confirmation hearing, saying that she needs more time to scour 17,000 pages of documents to uncover the true motivation behind the debtor's case.

The decision to wipe out existing equity interests and convert second-lien debt to new equity was the product of a December 2012 meeting between Carter and lender Silver Point Finance, Lonstein said.

She said she based her claims on five documents found among the 17,000 she and her colleagues are sifting through.

The debtor's financial adviser, Barclay's, conducted a valuation report that established the enterprise value of the company at $600 million in January and pegged the equity at 40 cents a share, she said.

Barclay's said that converting the second-lien debt to equity would position the company to make acquisitions and raise the value of the company another $30 million to $50 million, Lonstein told the court.

Debtors attorney Martin J. Bienenstock said Lonstein's characterization of the case "couldn't be further from the truth."

He called her assertions "hocus pocus arithmetricks" and "a cartoon on top of a fantasy on top of a dream."

And Bienenstock accused the equity committee of "running up professional fees" at the expense of creditors.

"Pursuant to the debtors' proposed Chapter 11 plan, the second lien noteholders are taking a loss of approximately $150 million based on the trading value of their bonds (approximately 49 cents on the dollar). Trade creditors are accepting cash of between 12.5 cents and 25 cents on the dollar, a recovery funded by the second lien noteholders who are receiving nothing on behalf of their deficiency claims," the debtors wrote in an objection to the equity committee's request to delay the valuation and confirmation hearings.

Lonstein hopes to delay the valuation hearing to the confirmation hearing. And she wants both hearings postponed until Sept. 10.

The committee said the earliest date its expert could deliver the independent valuation report would be Aug. 16.

The confirmation hearing is currently scheduled for Aug. 20.

A failure to confirm a plan before Aug. 28 would constitute a default under the debtor-in-possession financing facility Bienenstock said.

Judge Peter J. Walsh said he would schedule a hearing on the equity committee's request for delays after he has read the pleadings of the committee and the debtor.

Rotech, an Orlando, Fla.-based provider of home medical equipment and related products and services, filed for bankruptcy on April 8. Its Chapter 11 case number is 13-10741.

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