Earlier today, Rotech Healthcare (“Rotech”), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to a declaration filed by Rotech’s President and CEO (the “Declaration” or “Decl.”), Rotech describes itself as “one of the largest providers of home medical equipment and related products and services in the United States …”  The numbers back it up … Rotech provides medical equipment and services in all 50 states employing over 4,000 employees in 409 operating locations.  Decl. at *3.   Using the information provided in Rotech’s court filings, this post will look at Rotech’s business, why the company filed for bankruptcy and what Rotech’s objectives are now that it is in bankruptcy.

Business History and Operations

Rotech Healthcare, Inc., and various related entities are the “debtors in possession” in the present bankruptcy proceeding.  The Rotech entities that just filed for bankruptcy, however, are the successors to Rotech Medical Corporation (“RMC”).  RMC started in the medical equipment industry in 1981.  In 1997, RMC was acquired by Integrated Helath Services, Inc. (“Integrated”).  When Integrated filed for bankruptcy in Delaware in February of 2000, it took all of its subsidiaries into bankruptcy with it, including RMC.  Rotech was formed in March 2002 as part of the IHS plan of reorganization.  Decl. at *8.

Over 87% of Rotech’s revenues come from the respiratory therapy equipment and related services.  Patients that require respiratory services often suffer from long term breathing disorders that require extended treatment.  Patients that use Rotech products usually come to the company through hospital or doctor referrals. Once a patient is set up using the company’s equipment, service technicians follow-up as proscribed by the doctor.  The company provides 24 hour support service through a call center it operates in Murray, Kentucky.  Decl. at *4.

Events Leading to Bankruptcy

Rotech attributes its present bankruptcy to high debt and low revenue.  By that, in 2002 when the company formed as part of the Integrated bankruptcy, Rotech took on over $500 million in debt.  Decl. at *13.  The company emerged from the Integrated bankruptcy expecting to “services its debt with robust revenues from reimbursement by third-party payors.”  Id.  Instead, Rotech has experienced over $1.2 billion in aggregate losses since 2005 due to permanent reductions in insurer reimbursement rates.  Decl. at *15.  According to Rotech, the drop in reimbursement rates stemmed frm 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.

Objectives in Bankruptcy

Towards the end of 2012, Rotech retained Barclays Capital to determine the feasibility of an out of court restructuring.  According to Rotech, lenders were generally unwilling to provide the additional financing needed to reorganize outside of chapter 11. Once the company decided that it needed to file for bankruptcy, Rotech started seeking support for a plan of reorganization.  Decl. at *18.  Under a plan support agreement, Rotech hopes to restructure its debt through a pre-arranged chapter 11 plan.  Decl.  at *19.  According to Rotech, the proposed plan provides that “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 a plan.”

The Rotech bankruptcy is before Judge Peter J. Walsh.  The main case is proceeding under case no. 13-10741(PJW).  Rotech is represented by Young, Conaway, Stargatt & Taylor.