HealthSouth to meet creditors, shareholders
Jul 04, 2003 (TheDeal.com via COMTEX) -- Analysts see HealthSouth Corp.'s
decision to address disgruntled creditors and shareholders Monday, June 7, as a
rare positive for the embattled company.
Because the meeting is in the New York headquarters building of investment bank
Credit Suisse First Boston, some believe this reveals HealthSouth's intent to
reach an out-of-court restructuring.
Beleaguered HealthSouth would probably need more than $500 million to cover
defaults on bank and bond debt. CSFB is viewed as its best hope to generate this
sorely needed capital.
"It's a good sign that they're said to be talking with CS First Boston as a
financial adviser and not looking to a Blackstone or a restructuring outfit,"
said a hedge fund manager following HealthSouth's bonds. "I think they're going
to report good financial news on Monday."
HealthSouth's bonds are trading in the low-70 cents on the dollar range. When
reports of the company's alleged financial irregularities surfaced three months
ago, the bonds had sagged to between 45 cents and 46 cents, said Sabur Moini,
senior high-yield strategist at Los Angeles-based Payden & Rygel.
"The market obviously feels better about HealthSouth after the initial knee-jerk
reaction when its accounting irregularities hit," Moini said.
Interim chairman Joel Gordon, interim CEO Robert May and Bryan Marsal, chief
restructuring officer at New York turnaround specialist Alvarez & Marsal Inc.,
plan to discuss HealthSouth's financial status and its projections for 2004 in
the company's first public meeting since its reporting scandal broke.
Spokesman Andy Brimmer wouldn't comment on HealthSouth's financial situation or
whether the company plans to ask CSFB to help it raise money to avoid
bankruptcy.
The Birmingham, Ala.-based healthcare company has been hovering close to
bankruptcy filing since missing a $349.9 million bond payment April 1.
Senior lender J.P. Morgan Chase & Co. had shut off additional funding on its
$1.25 billion credit facility after citing accounting irregularities at the
company.
The Securities and Exchange Commission is suing HealthSouth and its former
chairman and CEO, Richard Scrushy, for allegedly puffing up the company's
profits by at least $1.4 billion since 1999.
At least eight company executives have pleaded guilty to criminal fraud charges
and probes by both the SEC and the Justice Department have reportedly been
expanded to review about $2.5 billion in reported profits over the past six
years.
HealthSouth has defied observers thus far, avoiding bankruptcy despite its
massive $3.3 billion debt.
Moini of Payden & Rygel, which sold HealthSouth bonds in May 2002 when they were
trading at $1.10, believes creditors have probably held off from filing an
involuntary bankruptcy petition because that could lead to liquidation and cut
the company's value.
"I think there's a core therapy and outpatient rehabilitation business that's
good and that all its accounting shenanigans are being viewed as a one-time
aberration," Moini said. "The worse thing to do would be to start shutting
things down because you want to keep it as a going concern to maximize its
value."
But analysts warn that financial information on HealthSouth remains sketchy
because of the alleged accounting irregularities. "They appear to have positive
cash flow right now and it's a real business with a value to it, but clearly the
numbers are inflated and can't be relied on," Moini said.
HealthSouth contends that published reports that venture capital fund Masada
Resources Corp. is leading an effort to buy the company and then take it public
are a veiled attempt to hide Scrushy's legal woes.
"We believe that's just an effort by Donald Watkins (Scrushy's lawyer) to
distract people from Mr. Scrushy's serious legal problems," Brimmer said.
The HealthSouth saga took a bizarre twist last week when Howard Capek, the UBS
equity analyst following the company, resigned after an internal probe concluded
that he commented on its stock during a quiet period.
The HealthSouth saga took a bizarre twist last week when Howard Capek, the UBS
equity analyst following the company, resigned after an internal probe concluded
that he commented on its stock during a quiet period.
by Terry Brennan and Andrew Morse
URL: thedeal.com |
