Rotech Healthcare announced that the company and consenting holders holding in the aggregate a majority of the outstanding principal amount of Rotech’s 10.5% senior second lien notes have reached an agreement in principle to restructure and recapitalize the company’s capital structure. The company believes the agreement in principle presents an effective means to eliminate substantial secured legacy debt, which has burdened the Company for more than a decade.

Under the agreement in principle with the consenting noteholders, Rotech expects to complete the restructuring and recapitalization of its capital structure through a pre-arranged plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code. Rotech anticipates filing its consensual plan and petitions in the coming weeks. Because of the agreement in principle, the entire process is expected to be completed within 90 to 120 days after commencement.

• Under the contemplated debt restructuring:The holders of the $23.5 million Term Loan would be paid in full;
• The $230 million of 10.75% First Lien Notes would be amended and the maturity potentially extended;
• The $290 million in 10.5% Second Lien Notes would be converted into 100% of the common equity of the reorganized Company, thereby eliminating this tranche of secured debt;
• All of the company’s outstanding shares would 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) and then be cancelled; and
• Trade creditors and vendors would be paid in full in the ordinary course of business as long as they maintain or reinstate existing payment terms.

In conjunction with the restructuring, Rotech is in negotiations with certain of its secured creditors to obtain debtor-in-possession (DIP) financing to ensure sufficient liquidity throughout what is expected to be a relatively short Chapter 11 process.

The company noted it recently was awarded a new, five-year $68.3 million contract from the U.S. Department of Veteran Affairs to provide home oxygen and respiratory services to medical centers in eight cities.

In connection with the proposed restructuring, Rotech is not making its March 15 interest payment for the second lien notes. To give the company time to implement potential restructuring and recapitalization transactions, Rotech and the lenders under the Term Loan Credit Agreement have entered into a Forbearance Agreement. Pursuant to the Forbearance Agreement, the lenders have agreed not to accelerate any of the company’s obligations under the Term Loan Agreement or enforce any liens until April 15, 2013 as a result of Rotech’s not making such interest payment.

Negotiations with the Consenting Noteholders to implement the transactions described above are continuing. The closing of these transactions is subject to various closing conditions, including bankruptcy court confirmation of the Chapter 11 Plan. Accordingly, no assurances can be given that the negotiations will be successful, whether the company will in fact be able to obtain adequate debtor-in-possession financing, or whether the transactions will be consummated.

Rotech has established a website at www.rotechsfuture.com for interested parties to view information about the debt reduction and restructuring.

Rotech Healthcare Inc. is one of the largest providers of home medical equipment and related products and services in the United States, with a comprehensive offering of respiratory therapy and durable home medical equipment and related services.