HealthSouth sustains bid; Mirant, Calpine firm up at the start of a new week

By Carlise Newman

Chicago, June 9 - HealthSouth Corp.'s bonds were still going strong Monday, after a report Friday indicated the company's future is not as wretched as it once looked.

HealthSouth said it won't sell its flagship hospital in Birmingham, Ala., Friday's Wall Street Journal reported.

The company had been the subject of rumors last week that ranged from the company avoiding bankruptcy, to the company having a prepackaged bankruptcy in the works, to who may buy the company, causing its bonds to swing in both directions.

On Monday, upwards was the direction they were headed. Healthsouth's 7 3/8% senior notes due 2006 were seen at 80 bid, 81 offered, up from 78 bid, 80 offered Friday, a trader said..

The Wall Street Journal report stated that in April the interim management team at HealthSouth, installed after the company's board fired founder and former Chairman Richard Scrushy, said it was seeking to raise cash by selling its hospital in Birmingham and a hospital in Miami.

But in a letter sent Thursday to employees, the Birmingham, Ala.-based hospital and physical therapy chain operator said the Birmingham medical center's "future potential far outweighs any immediate benefit from selling the facility," according to the Journal report.

"The same names came across today as last week, since there was nothing really new going on. Energy sector was a little stronger. HealthSouth has been really active. But I can't add much to that," said a distressed debt trader.

HealthSouth's bonds appeared undaunted by another report Monday by the Wall Street Journal, saying that a report by a law firm hired by HealthSouth to investigate insider-trading allegations failed to mention that HealthSouth refused to cooperate on a critical question about a $175 million earnings calculation.

Citing court records and unnamed people familiar with the matter, the newspaper also reported that HealthSouth closed the inquiry because it said it was becoming too expensive, a development that was not mentioned in the law firm's final report in March.

The firm's findings ended up as evidence cited by a federal judge in saying Scrushy's assets could not be frozen, the newspaper said.

In energy, Calpine Corp.'s 8½% notes due 2011 were quoted at 73 bid, 74 offered, "half a point" higher than Friday, a trader said.

Last Thursday Calpine said it would issue $800 million in secured notes, to be sold by Calpine Energy Services's Power Contract Financing LLC, and due in 2010 and secured by the cash flow from two contracts. One of the contracts is an existing long-term deal to sell power with the California Department of Water Resources. The other is a new deal to buy power from a financial institution. On Friday S&P rated the notes BBB.

"Energy has been active for so long it seems like we don't go for a day without seeing one of the names, if not actually trading them," said a distressed trader. "In the next few weeks it's really touch and go for both Calpine and Mirant."

Mirant Corp.'s 7 5/8% notes due 2006 were quoted unchanged at 79 bid, 81 offered after two rating agency downgrades last week.

Moody's downgraded Mirant's senior unsecured rating to Ca from Caa2. Mirant was downgraded Tuesday by Standard & Poor's. S&P cut Mirant's senior unsecured debt ratings to CCC from B. The ratings remain on CreditWatch, but the implications were revised to developing from negative.

Last Monday Mirant offered to exchange new secured notes due in 2008 for $1.45 billion of existing bonds due within three years. Mirant is offering to exchange $750 million of 2.5% convertible debentures due 2021, and $200 million of 7.4% senior notes due 2004 for new senior secured notes due 2008.

In addition, the Atlanta-based energy company said it is asking holders of the bond debt to vote in favor of a prepackaged plan of reorganization in case an insufficient number of banks or bondholders agree with its out-of-court restructuring plan.

In other news, WestPoint Stevens' 7 7/8% notes due 2005 were quoted at 30 bid, 31 offered Monday, a point lower than Friday, a distressed debt trader said. The company's bank debt was unchanged at 97¾ bid, 98¾ offered.

"WestPoint was a little lower today, but they've hung in there throughout this process. But having filed before, and the fact that they really needed to fix their situation earlier than this, they could take a dive soon," said a trader.

On Monday WestPoint Stevens Inc. said its agreement in principle, announced last week, is with the holders of a majority of its outstanding senior notes which represent less than the majority of the company's outstanding unsecured debt, as opposed to greater than the majority as was previously announced.

The agreement is on the terms of a financial restructuring that will be implemented through a filing under Chapter 11.

Under the terms of the restructuring, holders of $525 million 7 7/8% senior notes due 2005 will receive $175 million in 8% pay-in-kind unsecured subordinated notes due 2009. Holders of $475 million 7 7/8% senior notes due 2008 will receive $175 million in 8% pay-in-kind unsecured notes due 2012.

Both are contractually subordinated to the new senior credit facility and new senior secured notes.

Noteholders will also receive 30% of the new common stock of the reorganized company.

Noteholders also have a right to subscribe in cash for $166.7 million of 8% senior secured notes due 2009 secured by a second priority lien on all of the company's assets, redeemable at par by WestPoint at any time; and 70% of the new common stock of the company.

Holders who exercise their rights will be entitled to receive a payment from WestPoint equal to 1% of the amount of senior secured notes for which they subscribe.

The company's senior credit facility will be replaced by an exit facility.

Terms for unsecured creditors has not been determined yet, according to a document filed with the Securities and Exchange Commission. Holders of old common stock will receive nothing.

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