Bay Shore, N.Y. Graham-Field Health Products and some of its subsidiaries have filed voluntary petitions for Chapter 11 bankruptcy protection from creditors in U.S.Bankruptcy Court in Delaware.

As a result of the filing, Graham-Field has been able to secure a $38.75 million debtor-in-possession credit facility from various financial institutions to finance its reorganization. The credit facility will provide the company with the liquidity to pay its suppliers for post-petition goods and services, and to pay its employees without disruption, officials said. They anticipate that the facility will also provide sufficient funding to carry the company through the completion of its debt restructuring.

"We have the financing in place to continue to operate the business," said Thomas Opladen, Graham-Field's chairman. "[The] filing will have no effect on our ability to manufacture or distribute our products. For our customers and suppliers, the filing will make it easier to do business with the company."

Meanwhile, Graham-Field named David Hilton as its new president and chief executive officer, replacing John McGregor, who resigned. Robert Gluck also resigned his position as chief financial officer.

The company has retained Rothschild Inc. to provide investment banking services and financial advice in executing its restructuring strategies. Wilbur Ross, executive managing director at Rothschild, says that the company should not have much trouble patching up its present problems.

"The hope is that sometime during the course of the year, we'll be able to come back out with a balance sheet that's fixed up and a business profile that, while it will be somewhat smaller, will be hopefully stronger," said Ross. "So we think it should be a relatively quick and relatively noncontentious bankruptcy, in that we don't see that there are a whole lot of big litigation issues that should delay it in any particular fashion."

Ross did say that it was likely that the company will have to spin off some business lines. "Graham-Field made quite a lot of acquisitions at a fairly rapid pace, and some were good ideas; some were not so good," he said. "[Hilton] will be deciding what are the core businesses, and then part of our task will be to help them divest of whatever it is he decides is not the core business. What we hope to do is to make enough divestitures to repay the debtor in possession financing all together. If we can do that and convert the debt to equity, then we'll have a strong balance sheet because we won't have any secured debt. We also won't have any unsecured debt. That could be a very powerful enterprise for going forward."

Ross said the filing will not have a negative impact on products and services. The company will continue to deal with its trade vendors and honor its product warranties. It might even be a better situation for customers, Ross noted, because it is likely the new CEO will find ways to operate more effectively.

Overall, Ross is optimistic that Graham-Field will rebound from its current situation. "The filing program is designed to enhance the company. This is not a defensive filing in the sense that nobody's trying to shut them down. They filed in order to get the debtor in possession filing and in order to avail themselves of the powers that you can only get when you're in a proceeding. So there's a very particular agenda. This is definitely a reorganizable company. This is not a meltdown, and this is not a liquidation."

It could, in fact, be the turning point for Graham-Field, which during the past year, has been besieged by a series of upper management resignations and financial downturns (see timeline). Hilton is the company's fifth president and CEO since August 1998, while Gluck was the fourth CFO in a year. Opladen was just named chairman in December.

Earlier last year, the company settled a securities class action lawsuit for $20 million. Under the settlement, an insurance company will pay $10 million, while Graham-Field will pay for the rest, according to company officials.

The company's stock has fallen more than 70 percent during the past year, and it was delisted by the New York Stock Exchange and is now traded on the Nasdaq OTC Bulletin Board. -R.P.