Rotech lands $120 million line of credit

Sunday, October 8, 2006

ORLANDO, Fla. - Rotech Healthcare has secured a $120 million line of credit, fueling rumors that the embattled provider is setting the stage for a bankruptcy filing or a merger.

The line of credit, secured through Highland Financial Corp., comprises $25 million for general corporate purposes and $95 million for debt refinancing. It replaces Rotech's existing credit facility.

"This certainly speaks to the trouble the company's going through," said Balaji Ghandi, an analyst with the New York-based Oppenheimer & Co. "The big question is whether this is a lifeline to restructure the company or a lifeline to stay afloat as a standalone company."

Interestingly, Highland Financial is an affiliate of Highland Capital Management, the Dallas-based firm that owns about 80% of American HomePatient's secured debt and nearly 10% of its stock, pointed out Tyson Graygor, an analyst with Provident Healthcare Partners in Boston. Earlier this year, Highland Management threatened to take over AHP, but it backed off, ironically, after Rotech reported dismal earnings for the first quarter of this year.

A Rotech-AHP merger would make sense on paper, industry analysts say.

"You have two companies that are struggling and similar in size, both with a lot of overhead and corporate expenses," said Rick Glass, president of the M&A firm Steven Richards & Associates in Tarpon Springs, Fla. "It would seem to me that (Highland's) positioning themselves to combine the two, although that's not the rumor we usually hear-that Rotech plans to buy Apria, or Apria plans to buy Rotech."

But whether Rotech and AHP can work better together than they can alone is up for debate, industry analysts said.

"It's one thing if one of the companies has a clean bill of health, but both of these companies could use an infusion of cash," Ghandi said.

At the end of the day, much of Rotech's future-and AHP's, for that matter-hinges on what happens to reimbursement for oxygen and nebulizer medications, industry analysts said.

Patrick Daugherty, head of special situations investing for Highland Capital, confirmed that Highland Financial is an affiliate of the company. He couldn't confirm, however, whether it plans to combine Rotech and AHP.