A pair of sell-side analysts say the bonds of Rotech Healthcare, a home respiratory care provider, offer good value to investors since trading down on news the company is being investigated by federal prosecutors. While the company has not been informed of the subject of the inquiry, it probably relates to an independent contractor who booked fictitious sales to U.S. Department of Veterans Affairs, and so is not material to the credit fundamentals of the company, argues Elie Radinsky, an analyst at Jefferies & Co.
Rotech's 9.5% notes of '12 (B2/B+) were bid at 93 last Tuesday morning. Radinsky has a near-term price target of 97 on the bonds, but believes they will eventually recover to par. He says the company has a very strong management team in place under Phil Carter, who he adds did a good job of turning around Apria Healthcare as ceo of that company. Radinsky notes that Rotech signed a corporate integrity agreement with the Department of Health and Human Services which provides something of a shield for acts committed prior to 2002, except in cases of criminal activity.
Another sell-side analyst also sees the bonds trading up to par at the very least. He says the company and the board are extremely concerned with maintaining high ethical standards and feels strongly that they have nothing to hide. He says the company needs to demonstrate more in the way of operating momentum for bonds to trade above par, but he sees no danger of missed coupons or asset impairment.
