HLTH defends stance opposing convertible defaults; calls notices 'premature'

By Caroline Salls

Pittsburgh, Aug. 18 - HLTH Corp. counsel O'Melveny & Myers LLP responded to notices of default the company received in June on its 3.125% convertible notes due 2025, claiming that no default has occurred and that the notices of default are premature and "have no legal effect," according to an 8-K filed with the Securities and Exchange Commission.

According to a letter of response sent to indenture trustee The Bank of New York, the alleged defaults stem from the company's proposed merger into subsidiary WebMD Health Corp.

Specifically, the letter said the default notice claims that HLTH's intentions regarding future obligations constitute an "anticipatory breach" under the notes indenture.

"But there is no such animal under indenture law," O'Melveny & Myers said in the letter. "Noteholders only have the rights expressly granted to them in the indenture."

In addition, the response said the notes indenture "specifically prohibits the noteholders from prematurely declaring the types of default they are trying to declare at this point in time."

"They complain about HLTH's alleged non-compliance with two provisions that create specific timetables for their performance - all of which are in the future," the letter said.

HLTH's counsel said the noteholders are requesting a change-of-control notice, but the proposed merger does not constitute a change of control.

Also, O'Melveny & Myers said the noteholders' counsel is requesting a conversion-rate adjustment for the cash portion of the merger consideration in addition to the merger-consideration adjustment that the company will be providing to the noteholders.

However, HLTH does not believe that the merger-consideration adjustment will trigger the need for a conversion-rate adjustment.

Even if the conversion-rate adjustment is required, the company's counsel said it would not be required to make that adjustment until the close of business on the record date of any dividend or distribution.

HLTH, formerly Emdeon Corp., is a health care business, technology and information services company based in Elmwood Park, N.J.

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