HealthSouth and WorldCom keep market moving; Calpine rises on boost of bond offer

By Carlise Newman

Chicago, July 9 - HealthSouth Corp., WorldCom Inc. and Calpine Corp. were relatively active in the mid-week distressed debt trading session. HealthSouth bonds gave back some of the mighty gains they had procured on Monday, when the company's chairman said it may avoid bankruptcy.

Although still active, HealthSouth's bonds were "weakening," one trader said, quoting the 8½% notes due 2008 at 86 bid, 87 offered, from 87½ bid Tuesday. The 6 7/8% notes dipped to 88 bid from 89 bid, while the 7 5/8% notes due 2012 were quoted at 83 bid, 84 offered from 85 bid, 87 offered Tuesday.

The declines follow strong gains of about three points on Monday but a mixed view of activity on Tuesday. A few desks had said the 8½% notes rocketed to 88 bid, 89 offered, a 3 point rise from Monday. One also said the 6 7/8% notes rose 3 points to 90 bid, 91 offered during that session. But another trader claimed that all issues were between 2 and 3 points lower on the day.

HealthSouth's convertible notes dropped to 80 bid, 82 offered Wednesday from 82.5 bid, 83.5 offered, the trader added.

"Still, they're really going strong these days. A few months ago we saw them in the 40s, and now they're almost out of distressed levels," the trader said.

HealthSouth said in a conference call Monday that it is expecting net revenue of $4.1 billion and free cash flow of $328 million over the next 12 months.

HealthSouth describes its liquidity position as strong. The company said it has consolidated book cash of $345 million as of June 27 "and growing" and positive cash flow from operations. It has executed annualized cost savings of $80 million, generated non-core asset sale proceeds of $70 million and is current on all operating payables, generally with normal payment terms

The Birmingham, Ala. -based provider of rehabilitation care, outpatient surgery and diagnostic imaging services also said it should generate EBITDA of $650 million according to a Securities and Exchange Commission filing documenting the conference call.

On Tuesday, HealthSouth vice president of finance Jason Brown became the 12th officer of the company to agree to plead guilty to fraud and cooperate with the government's probe. Brown agreed to plead guilty to conspiracy to commit securities fraud, falsifying books and records, and wire fraud, according to the Justice Department.

WorldCom announced a lower revised guidance for the current year through year 2005. The Ashburn, Va.-based internet and long distance phone company said its Chapter 11 bankruptcy has weighed on new sales in the first half of the year, while continued pricing pressures in the consumer and small business markets have dampened revenues.

This caused a downward pressure on the 7½% notes due 2011 Tuesday, when they were seen at 26 bid, 27 offered early in the day. On Wednesday, however they came back to "around 28½ bid, 29½ offered," a trader said.

On Monday, WorldCom received court approval for its amended proposed settlement with the U.S. Securities and Exchange Commission. The settlement calls for a civil penalty to the company of $2.25 billion to be satisfied by a $500 million cash payment and $250 million in common stock to shareholders and bondholders upon emergence from Chapter 11 protection.

Calpine, soaring on Tuesday after announcing its $1.8 billion bond and loan offer, was less active but still higher on Wednesday after the San Jose, Calif. energy company increased the offering to $3 billion.

The 8½% notes due 2011 were seen at 84 bid, 86 offered, a trader said, compared to 82.5 bid, 83.5 offered Tuesday.

"There were rumors of them boosting the offer yesterday so it may have been priced in," the trader said.

Elsewhere Fleming saw "minor action" Wednesday. The 9¼% notes due 2010 were seen at 13½ bid, 14 offered, down from 14 bid, 14½ offered Tuesday.

"There haven't been many significant trades in Fleming's paper in a while," a trader said.

On Tuesday the Dallas-based grocery store operator said it will sell its wholesale grocery business to C&S Wholesale Grocers Inc. for $400 million, which would leave Fleming with only one major operating unit, its convenience store business, Core-Mark.

Fleming's wholesale grocery business was one of two major units left after it filed for bankruptcy in April after losing a contract with Kmart. Fleming moved to sell the wholesale grocery operation after recently losing another contract when retailer Target chose rival distributor Supervalu Inc. in early June to supply its discount stores that sell groceries.

Meanwhile, Adelphia Communications Corp. rose to higher levels Wednesday. The 10 7/8% notes die 2010 rose to 65½ bid from 63 bid on Tuesday, and the 9 7/8% notes due 2007 climbed to 66¼ bid from 61½ bid Tuesday.

Adelphia's Century Communications unit was also active; its 9½% notes due 2005 "got to 67 from 64" a trader said. The Frontier Communications unit's 11 7/8% notes due 2007 rose 1 point to 80 bid from 79 bid.

Reports surfaced Wednesday that the bankrupt cable company said it had paid the city of Los Angeles $2.6 million in back franchise fees dating to 1995. Adelphia said the payment covers unpaid fees from 1995 to 1999, before it owned the systems in question, as well as unpaid fees from 1999 to 2002, after Adelphia took ownership of the franchises.

On Sunday, reports circulated that Adelphia's unsecured creditors' committee sued hundreds of banks for providing loans to the Rigas family that controlled the company.

And in other news, Loral Space & Communications Ltd.'s 10% notes due 2006 were up 1 point to 52 bid. A trader said the rise could be related to Tuesday's news that the Palo Alto, Calif.-based satellite communications company signed a seven-year, $103 million agreement to build batteries under a sub-contract from Boeing Co.'s NASA systems unit in Houston.

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