Rotech's final DIP approval delayed by battle with equity committee

By Jim Witters

Wilmington, Del., May 7 - Rotech Healthcare Inc.'s final approval for a $30 million debtor-in-possession financing facility was delayed on May 7 when judge Peter J. Walsh ordered the debtors to turn over documents sought by the official committee of equity security holders and adjourned the hearing for a week.

During a hearing in the U.S. Bankruptcy Court for the District of Delaware, Walsh told debtors attorney Martin J. Bienenstock to provide the equity committee with the materials it needs to properly evaluate the final DIP motion and pursue any objections.

Walsh told Bienenstock to turn over the documents to the equity committee by May 9. And he scheduled a continuation of the final DIP hearing for May 14.

Also at the May 14 hearing, Walsh will hear arguments on the debtors' motion to disband the equity committee.

The DIP lenders agreed to the continued use of their cash collateral through the May 14 hearing.

Rotech has drawn down $22 million of the $25 million granted in the interim DIP order, Bienenstock said.

"I think we are running up a lot of professional fees on something that, at the end of the day, won't make any difference in this case," Walsh said.

Scott L. Hazan, attorney for the official committee of unsecured creditors, disagreed.

"This dispute has the potential to seriously damage the (Chapter 11) plan that is on the table," he told the judge.

The case holds the potential for "an excellent outcome," including a quick exit from bankruptcy with "the debtors surviving as a viable business entity," Hazan said.

Cash projections

Carmen Lonstein, attorney for the equity committee, told the court the committee needs the debtors' cash flow projections through 2013.

"We have met with very stiff resistance to requests for reasonable cooperation," Lonstein said.

Bienenstock argued that those projections are irrelevant to the DIP motion because Rotech needs to conclude its bankruptcy proceeding before Aug. 6.

Debtors attorney Michael T. Mervis said Rotech provided the committee with projections through the expected end of the case.

Lonstein said the DIP projections are inadequate for her committee, which needs to compare the changes in the projections that may have occurred between December and today.

The equity committee needs to see the 2013 numbers and Rotech's long-term business plan, which was submitted to the lenders, she said.

"If you said you expected $92 million of EBIDTA for 2013 in December and you are projecting a different number now, how can we vet that change without seeing the actual projections? And you have a hearing next week (May 16) for approval of a disclosure statement that references the same projections," Lonstein said.

Disband committee

The debtors have requested that the equity committee be disbanded, arguing that a 10% recovery "gifted" to the shareholders by a special committee of the Rotech board of directors did not constitute cause for forming the committee.

Bienenstock said the expenses being incurred by the equity committee and by those battling the equity committee will reduce the potential recovery to other creditors.

"We identified four downsides to having an equity committee and no upsides," he said.

Judge Walsh said the grounds for disbanding a committee are abuse of discretion by the U.S. Trustee in forming the committee.

Jane M. Leamy, representing the U.S. Trustee, said she could not divulge the discussions in the deliberative process in forming a committee and it is not up to the trustee to disprove the debtors' points.

"We believe that equity in this case should have a voice. We acted quickly. And there is a recovery to shareholders in this case," Leamy told the court.

Emil A. Kleinhaus - representing consenting second-lien noteholders Capital Research and Management Co., Fidelity Investments, Silver Point Capital LP and Venor Capital Management LP - said the debtors "already have done what a committee is supposed to do" by providing a recovery to shareholders.

"The equity committee is just arguing with the outcome. You don't form a committee for that. You litigate it," Kleinhaus said.

"Our special committee of the board of directors got 10 cents on the dollar for shareholders, and that led to the creation of an equity committee. If that stands, this is the last time any shareholders will ever get any money when they are out of the money," Bienenstock said.

Walsh said he needed time to review the documents filed in the case that the trustee relied upon in making the determination to form an equity committee.

Rotech, an Orlando-based provider of home medical equipment and related products and services, filed for bankruptcy on April 8. Its Chapter 11 case number is 13-10741.

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