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A rarely used Chapter 11 bankruptcy trustee will be appointed to oversee Coram Healthcare Corp. and help warring factions find a common ground on reorganizing now that two restructuring proposals have been rejected. Judge Mary Walrath in U.S. Bankruptcy Court in Wilmington, Del., accepted separate motions Tuesday by the U.S. Trustee’s Office and two major Coram noteholders that seek the naming of a special trustee, said the lawyer for the debt owners, Alan Miller of Weil, Gotshal & Manges. Walrath also rejected a motion by the Coram equity committee that would have required the company to elect a new board under a third reorganization proposal. She also denied the equity committee permission to bring a derivative suit against three bondholders that are seeking 100 percent ownership of Denver-based Coram, Miller said. The special trustee appointment seemed to be a fait accompli, since the parties involved saw no other way to break the impasse between the company and the equity committee or settle certain conflict-of-interest issues that have surfaced. “Judge Walrath based her decision on appointing the Chapter 11 trustee on what she considered to be irreconcilable differences between the equity committee and the debtor and conflicts-of-interests between the parties,” said Miller, who represents noteholders Goldman Sachs Credit Partners and Foothill Capital Corp. “The process will probably take place over the next 30 days, and I hope and pray this will finally end the irreconcilable logjam between the parties.” Two restructuring proposals have been rejected by Walrath on conflict-of-interest grounds. In both, Goldman Sachs, Foothill and a third noteholder, Cerberus Partners LP, would assume 100 percent ownership of the post-bankrupt company and then take it private. Walrath rejected the debtor’s first and second reorganization plans on grounds that David Crowley, Coram’s chairman, CEO and president, had a conflict of interest through his business relationship with bondholder Cerberus and that those plans were not proposed in good faith. Coram, the unsecured creditors committee and Cerberus joined forces to appeal Walrath’s rejection of the second plan before the hearing. The equity committee, meanwhile, is seeking to forge a third reorganization proposal that includes shareholders Samstock, an investment affiliate of Samuel Zell; fund manager Richard Haydon; and the Ann & Robert Lurie Foundation. “I think the appointment of the special trustee will take us to the next important step to hopefully reaching a consensual plan of restructuring,” said Coram’s co-counsel, Laura Davis Jones of Pachulski, Stang, Ziehl, Young & Jones in Wilmington. “It’s an extraordinary remedy that is starting to be used so much more now than in the past and that could be tied to the large increase in filings.” The U.S. Trustee’s Office proposed appointment of a Chapter 11 trustee Jan. 18 to help break the deadlock between conflicting parties. Goldman Sachs and Foothill Capital filed separate motions to support the plan. “The UST submits that the estate is in need of an impartial fiduciary to manage the debtor’s business operations and govern administration of the estate,” Don Beskrone argued on behalf of the U.S. Trustee in Wilmington. “The debtors have been unable to obtain confirmation due to Crowley’s actual conflict of interest, the board’s failure to address the issue, and the debtor’s inability to reach a consensual resolution of the issue,” Beskrone said in his motion. Coram has continued to operate since it filed for bankruptcy in Wilmington in August 2000. While several large, national healthcare companies filed for Chapter 11 after Medicare reimbursements were scaled back starting in 1998, Coram sought to reorganize under a complicated law known as Stark II when it feared it would no longer be eligible for federal payments after Jan. 1, 2000. Stark II requires a healthcare company to maintain $75 million in shareholder equity to qualify for an exception that allows physicians to refer patients to a healthcare provider’s services. Coram was getting referrals from outside physicians under this exception but feared that it could no longer maintain the $75 million threshold. It then filed for Chapter 11. Miller, Joseph Allerhand and Douglas Urquhart are counsel for Goldman Sachs and Foothill at Weil, Gotshal & Manges in New York while Karen Bifferato and Michelle McMahon are the noteholders’ co-counsel at Connolly, Bove, Lodge & Hutz. Carol Morrison at Schulte Roth & Zabel in New York represents Cerberus Partners. David Friedman and Adam Shiff are Coram’s counsel at Kasowitz, Benson, Torress & Friedman in New York while Jones and Rachel Lowy at Pachulski, Stang are local co-counsel. Richard Levy, Theodore Low and Maria Minor at Altheimer & Gray in Chicago are representing the equity committee while Mark Minutti is co-counsel at Saul Ewing. Copyright (c)2002 TDD, LLC. All rights reserved.

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