Rotech envisions 'solid future'

Friday, March 22, 2013

ORLANDO, Fla. – Rotech Healthcare plans to emerge from bankruptcy protection a stronger company with an eye toward “aggressive” growth, says President and CEO Steven Alsene.

“It’s a game changer for the company,” he said. “We are very enthused and looking forward to a solid future.”

On March 15, the provider announced plans to file for Chapter 11 bankruptcy protection. Rotech has struggled with debt—currently at $543.5 million—since 2002, when it was spun-off from parent company Integrated Health Services.

What was considered an “acceptable” level of debt at one time no longer makes sense, says Alsene.

“It’s a lot different world now,” he said. “Reimbursement looks dramatically different and there comes a point where this capital structure doesn’t match the size of the business.”

Under the plan, Rotech will convert its largest debt—$290 million—into 100% equity in the reorganized company. That should put it in stronger position going forward, say industry analysts.

“That money will be there to use in a different way to grow the business instead of just servicing the debt,” said Rick Glass, president of Steven Richards and Associates.

One key component of Rotech’s future growth plans: acquisitions, Alsene said.

“We all know this is a consolidating industry,” he said. “This puts us in a position to be more aggressive and be part of the consolidation we know is ahead.”

In the meantime, it will be business as usual for Rotech, Alsene says. He expects no significant changes to operations, and he says there are no plans to close branches or layoff employees. Under the reorganization plan, Rotech also plans to honor invoices incurred before the bankruptcy filing.

“We don’t want to damage the underlying business, and we don’t want to have to rebuild longstanding relationships because people have been impacted by the filing process,” he said.

That’s a good sign, say analysts.

“To have the ability to meet its obligations shows that it’s a fairly healthy company,” said Don Davis, president of Duckridge Advisors. “They have the capacity to be successful.”

Some believe Rotech’s bankruptcy filing elevates concerns about the providers CMS has offered contracts as part of competitive bidding. In 2010, Rotech won 17 contracts and it’s likely it has also received and accepted contracts in Round 2.

“CMS is supposed to be doing some sort of review, but I know many cases of them awarding massive amounts of contracts to providers that have nowhere near the capability to service them,” said Glass. “This doesn’t sound any worse than that.”