Rotech equity holders try to block any make-whole to second-lien notes

By Jim Witters

Wilmington, Del., Aug. 12 - Rotech Healthcare Inc.'s official committee of equity security holders hopes to disallow a make-whole payment of about $57 million under the indenture to the company's second-lien notes, according to documents filed Aug. 12 with the U.S. Bankruptcy Court for the District of Delaware.

The March 17, 2011 indenture is among Rotech, its subsidiary guarantors and Bank of New York Mellon Trust Co., NA as trustee.

The indenture governs Rotech's 10½% senior second-lien notes due 2018.

"Although neither the debtors nor the holders of the second-lien notes asserted the make-whole payment as of the petition date, they may now seek to assert the claim as a defensive measure to further insulate their proposed debt-to-equity conversion from the requirements of ... the bankruptcy code," the filing states.

The committee claims the make-whole payment is not valid under state law or bankruptcy law.

Specifically, the payment

• "Constitutes an unenforceable penalty under New York law";

• Is "plainly and grossly disproportionate to any actual damages" the holders reasonably could have expected to incur from early payment of the notes; and

• Should be disallowed as a claim for unmatured interest.

The committee has requested an Aug. 29 hearing on the motion.

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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