HealthSouth firmer on report it may hire CSFB; Global Crossing losing steam

By Carlise Newman

Chicago, July 3 - Few fireworks went off in the distressed debt markets Thursday ahead of the Independence Day holiday, with the exception of HealthSouth Corp., which has been steadily rising all week. The Wall Street Journal reported Thursday that HealthSouth is looking to raise more capital to help stave off a bankruptcy filing.

To stay out of bankruptcy, the Birmingham, Alabama physical therapy provider would have to raise more than $500 million to pay off a $345 million convertible-bond issue that has already matured, the Journal said.

HealthSouth's bonds rose "two points across the board," a trader said, citing the 6 7/8% notes due 2005 at 86 bid, 88 offered, while the 8 ½% notes due 2008 rose to 85 bid. The bank debt was also seen up 2 points to 80 bid, 82 offered, a trader said.

HealthSouth has talked with corporate restructuring firms and investment banks that could help it raise money, and as of Wednesday, was close to finalizing a deal to hire Credit Suisse First Boston, the Journal said.

"The bonds really rocketed up from that report. They opened strong and stayed there," a trader said.

The newspaper also reported, citing unnamed sources, that Leif Murphy, a former company treasurer, made a July 1999 presentation to former HealthSouth Chairman and Chief Executive Richard Scrushy that showed the company's profits were overstated.

Murphy demanded that Scrushy immediately correct HealthSouth's financial statements, but Scrushy refused, sources told The Journal. Soon after the incident, Murphy left HealthSouth.

Global Crossing Ltd. was another name "seen on the street" a distressed debt trader said.

This week, the bankruptcy court granted a request by the company for an extension preserving an exclusive agreement to sell a majority stake in the company to Singapore Technologies Telemedia, or STT.

Global Crossing had sought an extension until October that would preserve STT's exclusive takeover rights so the two companies would have more time to seek U.S. approval for the deal.

XO Communications Inc. had launched an unsolicited takeover offer for Global Crossing and had objected to the requested extension.

Global Crossing's bonds were down ½ point to 4 ¼ bid, 4 ¾ offered, a trader said.

"The paper has been all over the place this week," a distressed debt trader said.

XO, Global Crossing's bank lenders, and others had contended that Global Crossing should not be exclusively locked into a deal with STT since that pact faces uncertain regulatory approval due to potential concerns about foreign ownership of strategic telecommunications assets. STT is a unit of Temasek Holdings, the investment arm of the Singapore government.

XO said that Global Crossing does not have the luxury of waiting to see if the STT pact wins approval, contending the bankrupt U.S. company faces a cash crunch. But the judge disagreed and said Global Crossing is in talks with various financial firms to secure debtor-in-position funding in the range of $75 million to $150 million.

Without the extension, Global Crossing had warned the deal would likely fall apart since STT would have no protection from rival bids and it would face additional expenses to pursue an uncertain deal.

Grupo Iusacell S.A. de C.V. said it would not make the $25 million interest payment due on June 1 on its 14.25% bonds due 2006, and the 30-day period within which to make the interest payment expired.

Iusacell's bonds "have been falling all week," a trader said, noting that the 10% notes due 2004 were at 57 bid, 60 offered, "a good three points" lower than Tuesday.

As a result of the failure to make the payment, Iusacell is in default, and the bondholders have the right to declare the principal of and the accrued interest under the bonds due and payable or take other legal actions.

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