- Rotech Healthcare Inc. Files for Chapter 11 Protection
- April 15, 2013 | Author: Eric J. Monzo
- Law Firm: Morris James LLP - Wilmington Office
On April 8, 2013, Rotech Healthcare Inc. and over 100 of its affiliates (collectively, the "Company") filed for chapter 11 protection in the United States Bankruptcy Court for the District of Delaware. According to the petition and the Declaration of Steven P. Alsene, the Company's President and Chief Executive Officer, offered in support of the Company's first day motions and applications, the Company has more than $100 million in assets and owes lenders and noteholders approximately $543.5 million.
As set forth in the Alsene Declaration, the Company is one of the largest providers of home medical equipment and related products in the United States. Since 2005, the Company has experienced over $1.2 billion in aggregate losses that it attributes to reductions in insurer reimbursement rates resulting from three different pieces of legislation: The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, The Deficit Reduction Act of 2005, and the Medicare Improvement for Patients and Providers Act of 2008.
In response to its financial and operational challenges, in the fourth quarter of 2012, the Company retained Barclays Capital, Inc. to determine whether an out-of-court restructuring of the Company's balance sheet would be feasible. However, according to the Alsene Declaration, the Company's bankruptcy filing became necessary because of the lack of market interest in an out-of-court restructuring, coupled with the Company's increased need to service its long term debt obligations in light of declining revenues and operational challenges.
On March 15, 2013, a majority of holders of its First and Second Lien Notes (the "Consenting Noteholders") reached an agreement (the "Plan Support Agreement") to allow the Company to restructure and recapitalize to eliminate substantial secured legacy debt. Pursuant to the Plan Support Agreement, the Company agreed to reorganize its capital structure through a pre-arranged chapter 11 plan (the "Plan").
According to Mr. Alsene's Declaration, subject to the terms and conditions of the Plan, the Company anticipates that "(i) holders of the Term Loan Facility and the First Lien Notes will receive their pro rata share of an amended and restated term loan to be secured by a first priority security interest in substantially all of the reorganized Company’s assets; (ii) the Second Lien Notes will be converted into 100% of the common equity of the reorganized Company, subject to dilution by the equity interests issued under the Management Equity Incentive Program (thereby eliminating in excess of $300 million of secured debt); (iii) all the Company’s outstanding shares will receive a distribution of 10 cents per share (provided that the total amount paid on account of such interests does not exceed $2.62 million); provided, however, that if a senior class rejects the plan, the shareholders may receive less or nothing at all and (iv) trade creditors and vendors who agree to maintain or reinstate payment terms as existing prior to the Commencement Date will be paid in full upon the effective date of the Plan. Other unsecured claims will be paid in full if the aggregate amount of unsecured claims does not exceed $2,500,000 and except as otherwise set forth in the Plan."
As part of its first day filings that were heard on April 9, 2013, the Company moved for an Order directing the procedural consolidation and joint administration of the chapter 11 cases. The Bankruptcy Court granted this and other first day motion and applications. The docket for case number 13-10741-PJW should be consulted for all matters affecting this case. The cases have been assigned to Bankruptcy Judge Peter J. Walsh.