Healthsouth up on "strategic repositioning"; Verizon unit plans big deal to fund spin off

By Paul Deckelman and Paul A. Harris

New York, Aug. 14 - HealthSouth Corp. said that it will explore possibly selling or spinning off three of its four business units to focus on the fourth division - inpatient rehabilitative services - where the Birmingham, Ala.-based healthcare services provider makes most of its money. The company's bonds were up several points on the news, traders said.

On the downside, Dura Automotive Systems Inc.'s bonds were off by 2 points or more, on market rumors that the troubled Rochester Hills, Mich.-based vehicle components manufacturer has hired a restructuring firm - a development interpreted by some nervous investors as a sign that a reorganization may not be too far off.

Sources variously marked the broad high yield market "flat" and "unchanged" on Monday.

A buy-side source mentioned seeing some credits "a little weaker," and singled out the existing bonds of Tulsa, Okla., energy firm Williams Cos.

"There is a lot of LBO talk surrounding Williams at the moment," the buy-sider said. "Carl Icahn increased his stake in the company today."

The primary market saw one deal come and go in the form of a drive-by transaction, as Lamar Media Corp. priced a $200 million add-on to its 6 5/8% senior subordinated notes due Aug. 15, 2015 (Ba3/B) at 92.809 to yield 7¾%.

The yield came at the tight end of the 7¾% to 8% price talk.

JP Morgan ran the books for the debt refinancing deal from the Louisiana-based outdoor advertising company.

The original $400 million issue priced at par on Aug. 9, 2005. Monday's add-on increases the issue size to $600 million, so even though Monday's tap came tight to the price talk the transaction represents a 112.5 basis points increase in interest expenses for Lamar.

Verizon directories spin off

Elsewhere on Monday, a market source told Prospect News that New York City-based Verizon Communications Inc. is expected to sell $3 billion to $4 billion of high-yield notes as part of an overall $8 billion debt financing package to back the spin-off of its directories business.

Syndicate names and timing remain to be determined, the source said.

Verizon Directories Disposition Corp., a wholly owned subsidiary of Verizon Communications, disclosed to Verizon Communications stockholders its intention to spin off Verizon Communications domestic print and Internet yellow pages directories publishing operations in documents that were filed on July 7 with the Securities and Exchange Commission.

Even if the bond financing came in at the low end of that range, it would top the $2.14 billion of bonds backing the 2002 spin-off of Qwest Communications' directories business, Dex, for $7.05 billion.

That transaction was structured in two stages. In late 2002 Dex Media East LLC acquired the operations in Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota and South Dakota for $2.75 billion.

The following year Dex Media West LLC acquired the operations in Arizona, Idaho, Montana, Oregon, Utah, Washington and Wyoming for $4.30 billion.

The Dex Media East financing brought $975 million of high-yield debt in a two-part transaction in October 2002: a $450 million tranche of senior notes due Nov. 15, 2009 priced at par to yield 9 7/8%, and a $525 million tranche of senior subordinated notes due Nov. 15, 2012 priced at par to yield 12 1/8%.

In August 2003 Dex Media West priced $1.165 billion in two tranches: $385 million of senior notes due Aug. 15, 2010 at par to yield 8½% and $780 million of senior subordinated notes due Aug. 15, 2013 at par to yield 9 7/8%.

A quiet primary ahead

Sources continued to advise Prospect News on Monday that save for a drive-by deal here and there, such as Monday's Lamar Media deal, very little new issue business is expected to materialize in the run up to the Labor Day break - the summer-fall boundary in the high-yield market.

Of the scant business that does remain on the forward calendar, one piece of news circulated on Monday.

Broadview Networks Holdings Inc. talked its $210 million offering of six-year senior secured notes (B3/B-) at 11¼% to 11½%.

The Jefferies & Co.-led acquisition financing deal is expected to price on Tuesday.

Lamar up in trading

When the new Lamar Media add-on notes were freed for secondary dealings, a trader said that the bonds - which "priced at a discount to where [the original Lamar bonds] had been trading," around 93 bid, 94 offered, moved back up, to 93.5 bid, 94.5 offered.

Lamar's outstanding 7¼% notes due 2013 were up a quarter-point, to 99.75.

Among other recently priced issues, the trader said, Travelcorp (TDS Investor Corp.)'s three issues of new dollar-denominated notes, which had all priced at par Friday and then eased in initial aftermarket dealings later that day to levels around 99 bid, 99.5 offered, were "pretty much in line" with those levels Monday, or perhaps down just a little more, with the 9 7/8% senior notes due 2014 seen off ¼ point at 98.75 bid, 99.25 offered.

Meantime, the new bonds of FMG Finance Pty. (Fortescue Metals Group), which also priced at par on Friday and then initially traded below issue, moved up slightly on Monday, with its 10 5/8% notes due 2016 at 99.5 bid, par offered, up from 99.25 bid, 99.75 offered.

Another trader saw the new Travelport 9 7/8s as low as 98.75 bid, "but they [later] came off their lows" to close at 99 bid, which he characterized as "still below Friday." He saw the 11¾% notes due 2016 in much that same boat, at 98.75 bid, 99.25 offered, while the floating-rate notes due 2014 were at 98.75 bid, 99 offered.

HealthSouth up on sale plan

Back among the established issues, HealthSouth's bonds were better as the company announced plans to shop its surgery centers, outpatient services and diagnostic imaging center businesses around for a possible sale or spin off, aided by Goldman Sachs & Co. for the first two and Deutsche Bank for the third. Company executives said that most of the proceeds from any such unit sales would be used to de-leverage the company, and indicated that bondholders and other lenders would be likely to go along with the plan (see related story elsewhere in this issue).

A trader said that the company's 10¾% notes due 2016 were 2 points better at 97.5 bid, 98.5 offered, while its floating-rate notes due 2014 were a point up at 98.5 bid, 99.5 offered.

Imaging names steady

He said that the news that HealthSouth was shopping, among other assets, its approximately 85 diagnostic imaging centers caused little movement in the bonds of its competitors in that area, with Radiologix Inc.'s 10½% notes due 2008 unchanged at 102.5 bid, 103.5 offered, InSight Health's floating-rate notes due 2011 off ½ point at 91.5 bid, 92.5 offered, and Alliance Imaging Inc.'s 10 3/8% notes ¼ point easier at 92 bid, 93 offered, all on light trading.

A trader at another desk also saw the HealthSouth 103/4s up 2 points, quoting them at 98 bid, 98.5 offered. Besides announcing its strategic repositioning plans, HealthSouth also reported a smaller second-quarter loss versus a year ago.

Constar higher on earnings

Among other issues which were also reporting numbers Monday, the trader said, Constar International Inc.'s 11% notes due 2012 jumped 3 points to 82 bid, 83 offered, as the Philadelphia-based plastic packaging company reported that it swung back to the black in the second quarter with net earnings of $200,000 (one cent per share) versus a year-ago loss of $7.7 million (63 cents per share).

Cooper-Standard Holdings Inc.'s 8 3/8% notes due 2014 were likewise up 2 points, to 76.5 bid, 77.5 offered, on "strong numbers as well," the trader said, as the Novi, Mich.-based automotive components maker posted $20.1 million of net income for the second quarter, nearly three times the year-earlier $7.7 million.

Dura lower

The bonds of another automaker, however, were headed in the opposite direction, as Dura Operating's 9% subordinated notes due 2009 dropped 2 points to 22 bid, 23 offered, amid an otherwise largely quiet auto sector.

A trader in distressed notes saw those bonds get as low as 21 bid, 23 offered late in the day, while the company's 8 5/8% senior notes due 2011 were a point lower at 76 bid, 77 offered.

Yet another trader saw the Dura seniors at 77 bid, 78 offered, which he called a 1 point loss, while the sub bonds were 2 points down at 22 bid, 23 offered.

A trader cited market rumors that Dura - struggling to return to profitability and to avoid having to follow a number of auto supplier-sector peers into bankruptcy - had hired a restructuring firm to advise it, "so some people are quoting them flat [i.e. without the accrued interest], although they were pretty much trading with [interest]," even though "people were trying to bid the bonds flat."

On Monday evening, well after the market had closed, The Wall Street Journal's online news site reported that Dura had in fact hired New York-based restructuring specialist firm Miller Buckfire & Co. "to help with financial and operational issues." The report cited two unidentified automotive sources said to be familiar with the move.

The Journal noted that earlier this year, another auto supplier well known to junk marketeers - Toledo, Ohio-based Dana Corp. - hired Miller Buckfire less than a month before it filed for Chapter 11.

Bally down again

Elsewhere, Bally Total Fitness Holding Corp.'s bonds - which had slid badly on Friday when the troubled Chicago-based fitness center chain operator announced that it was ending efforts to find a buyer or merger partner - continued to stagger on Monday, with a market source quoting its 9 7/8% notes due 2007 down another point at 91.5 bid.

At another shop, a trader who'd seen those bonds fall even further in Friday's "volatile" dealings, to an 89-90 bid context, pronounced them down another 1½ points on the session at 88 bid, 91 offered, "a little wide."

However, a third trader saw the bonds at 92 bid, 94 offered, which he termed actually up a point from Friday's close, and saw the company's 10½% notes due 2011 unchanged at 99.5 bid, 101.5 offered.

Besides admitting that efforts to find a would-be buyer or merger partner had failed, and that it would instead now aim towards a recapitalization or other financial transaction, Bally on Friday also cut its 2006 outlook on lower-than-expected membership sales - although it asserted that its cash flow and borrowing availability should be sufficient to meet its liquidity needs through next year's first quarter. It further warned that it would have to delay filing its second-quarter report, although it said that it expects to meet the Sept. 11 reporting deadline set by its bondholders and senior bank lenders, and it announced the abrupt resignation of embattled chief executive officer Paul A. Toback.

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