InSight misses May 1 interest payment on 9 7/8% notes, extends exchange offer deadline

By Caroline Salls

Pittsburgh, May 2 - InSight Health Services Holdings Corp. said it failed to make the $9.6 million semi-annual interest payment due May 1 on the outstanding 9 7/8% senior subordinated notes due 2011 of subsidiary InSight Health Services Corp., and the company extended the offer to exchange shares of its common stock for the $194.5 million in notes to 11:59 p.m. ET on May 16.

According to a 424B4 filed with the Securities and Exchange Commission, non-payment of the interest due on the senior subordinated notes starts a 30-day grace period before an event of default is triggered, as well as a cross-default and acceleration of the company's other debt, including its revolving credit facility and floating-rate notes.

The notes exchange offer was previously set to expire at 11:59 p.m. ET on April 27.

InSight launched the exchange offer on March 21 along with a vote solicitation on a pre-packaged plan of reorganization, and as of May 1, $109.1 million of notes had been tendered.

Under the exchange offer, for each $1,000 principal amount of notes tendered, noteholders will receive either 40 shares of the company's common stock after giving effect to a 1-for-5.687362 reverse stock split if the exchange offer is consummated without filing pre-packaged Chapter 11 bankruptcy, or 40 shares of common stock after giving effect to a 1-for-6.326392 reverse stock split under a pre-packaged plan of reorganization.

In order to avoid triggering a change of control under the indentures for InSight's senior secured floating-rate notes due 2011, which will remain outstanding following the exchange offer and the senior subordinated notes, no senior subordinated noteholder may exchange its notes for more than 34.99% of the shares of the common stock that will be outstanding upon the consummation of the exchange offer.

Completion of the exchange offer is conditioned upon InSight receiving tenders for not less than 97% of the notes.

In addition, if InSight meets or waives the minimum tender condition and consummates the exchange offer without filing a pre-packaged Chapter 11 plan of reorganization, the company said it will amend the senior subordinated notes indenture and will pay a one-time cash payment of $50 for each $1,000 of senior subordinated notes to each holder who has consented to the proposed indenture amendments.

The consent payments will be made within 60 days following the closing of the exchange offer.

Senior subordinated noteholders will not receive any consent payments if the company consummates the exchange offer through a pre-packaged plan.

The company said the solicitation of acceptances of its initial pre-packaged plan expired on April 19, but it has amended the pre-packaged plan to provide a more favorable distribution to the holders of the senior subordinated notes.

Noteholders who voted in favor of the initial plan will not need to resubmit their votes, but noteholders who voted against the plan can withdraw their votes if they are now in favor of the plan.

InSight said it believes that it has received the necessary acceptances to confirm the pre-packaged plan if it chooses to file Chapter 11 bankruptcy.

Under the plan, all administrative claims, priority claims, secured claims and general unsecured claims, other than those held by senior subordinated noteholders, will be paid in full.

The dealer manager for the exchange offer is Lazard Capital Markets LLC. CapitalBridge (877 746-3583) is the solicitation and information agent.

InSight is a Lake Forest, Calif., provider of diagnostic imaging services.

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