S&P calls Rotech weak, vulnerable

Wednesday, August 22, 2012

ORLANDO, Fla. – Fearing that Rotech Healthcare could default on its debt obligations within the next six months, Standard & Poor lowered its rating from "B" to "CCC-," it announced last week. 

"The ratings reflect Rotech's 'highly leveraged' financial risk profile, dominated by its 'weak' liquidity position, high debt burden and overall sensitivity of credit metrics to the uncertain reimbursement environment," stated S&P.

Rotech's "narrow" focus—the provider is 87% respiratory and heavily dependent on government payers—is also a concern, says S&P, due to ongoing Medicare cuts, particularly to nebulizer medications. Any future growth for the company will be tied to Medicare's competitive bidding program, which will add volume but lower rates for contract suppliers.

Rotech’s revenue for the second quarter of 2012 declined 3.8% compared to the previous year and its EBITDA was 16%—lower than S&P's full year expectation of 22%. Rotech continues to have negative cash flow and has severely depleted cash reserves, with only $12 million in reserve, according to S&P. 

"Rotech's vulnerable business risk profile reflects the company's uncertain business strategy as it goes through a change in senior management," stated S&P. 

In July, President and CEO Philip Carter announced his retirement, effective Dec. 31, 2012.