Rotech Awarded VA Contract Then Files Bankruptcy

Rotech Healthcare Inc. (ROHI), a provider of home respiratory products, said it will file to restructure through a pre-arranged plan under Chapter 11 of the U.S. Bankruptcy Code Friday March 15th.

“This is a game-changer for Rotech that we believe will allow us to grow and thrive,” Steven Alsene, chief executive officer of Rotech, said in an interview today. The Orlando-based company said it expects to file the consensual plan and petitions in the coming weeks.

Under the contemplated restructuring, Rotech’s $290 million in 10.5 percent second-lien notes due in 2018 would be converted to equity; holders of a $23.5 million term loan would be paid in full and the $230 million of 10.75 percent first-lien notes would be amended and the maturity potentially extended, Rotech said today in a statement.

Orlando-based Rotech’s predecessor company also filed for Chapter 11 protection in 2000, along with its then-parent, Integrated Health Services, and was spun-off in 2002 as a separate entity, it said at the time.

The company provides home-based equipment to help people with breathing disorders including Chronic Obstructive Pulmonary Disease (COPD). The company has about 420 operating centers in 49 states.

Pricing Pressure

In a Feb. 26 report, Standard & Poor’s said Rotech was facing “pricing pressures,” with three-fifths of its revenues paid by Medicare and other government programs.

“It’s been rough on our industry for a solid 7 years,” Alsene said. “When the company was spun off with this debt, it was an acceptable level of debt, but then three years later the cuts started coming fast and furious and they haven’t stopped really.”

Rotech is the second U.S. home health care provider to seek bankruptcy court protection in a month.

Liberty Medical Supply Inc. and affiliates that provide products and services for people with diabetes and other ailments filed Chapter 11 papers in Wilmington, Delaware, Feb. 15. The Port St. Lucie, Florida-based company cited assets and debt of as much as $500 million each. Liberty blamed tax and Medicare payment woes for the failure.

Earlier that same week, according to federal agencies, it was announced that Rotech had won a $68.3 million contract from the U.S. Department of Veterans Affairs Service Area Organization. In accordance with the contract, Rotech will be servicing Respiratory patients in Muskogee and Oklahoma City, OK.; New Orleans; Biloxi and Jackson, Miss.; Fayetteville and Little Rock, Ark.

Ironically, almost one year ago Rotech was embroiled in a legal battle with the U.S. Department of Veterans Affairs specifically regarding the system by which such contracts were awarded.