HealthSouth still weighed by news of scandal; WorldCom still riding wave of financial forecast

By Carlise Newman

Chicago, Aug. 25 - HealthSouth Corp. bonds weakened further in an otherwise quiet Monday trading session.

HealthSouth's bonds rallied earlier in the month after the company announced it had paid $117 million in past-due interest under various borrowing agreements, but were weakening as of Friday.

The benchmark 7 5/8% notes due 2012 were trading 2 points lower at 81 bid, 83 offered on Monday, a trader said.

"The bad news Friday slammed the bonds," he said. "They were looking worse then but today wasn't much better. All of this is no picnic for the company."

Reports Friday said that federal prosecutors in Alabama are looking into possible links between a corruption probe in the state government and the accounting scandal at HealthSouth.

Investigators have been looking at possible bribery involving a high-level state official since 2001, the report said. Two Alabama businessmen and a top aide to former state governor Don Siegelman have pleaded guilty to fraud in relation to bribes paid to one of the businessmen, the newspaper reported.

Birmingham-based HealthSouth faces federal charges of inflating its reported earnings by $2.5 billion in recent years. Much of the inquiry has focused on Richard Scrushy, HealthSouth's founder and former chief executive.

Prosecutors are now swapping information on the two probes, reports said.

Elsewhere, WorldCom Inc. bonds were higher Monday, trading in the 28¼ bid, 28¾ offered context, a trader said, a rise of ¾ of a point.

The Ashburn, Virginia-based long distance company last week said it stands by its July 7 financial forecasts, which called for 2003 revenues of $24.5 billion. It said its revenues would be $24.6 billion in 2004 and $25 billion in 2005. WorldCom rallied for most of the week following the report.

"The bonds have been riding the wave of the announcement last week. No big moves but they're holding above water," a trader said.

Elsewhere, Petroleum-Geo Services ASA bonds traded in the 67 bid area, a trader said.

"PGS was active but there was no news motivating them. Just a name we don't see very often," he added.

The bankrupt Oslo, Norway-based oil company filed its reorganization plan at the end of July. Under the plan, PGS' creditors holdings its $2.14 billion senior unsecured debt, comprising $680 million of bank debt and $1.46 billion of bonds, would be entitled to select between two recovery packages. One consists of a senior unsecured term loan facility and represents 61% recovery; and the other consisting of a combination of unsecured notes and 91% of PGS post-restructuring equity, which will be reduced to 61% after PGS shareholders acquire 30% of the total post-restructuring shares for $85 million, and represents 73% recovery.

Meanwhile, UAL Corp. bonds were firmer Monday. The parent of United Air Lines said Monday it posted a profit from operations in July of $35 million, but a loss of $7 million when excluding benefits from its Chapter 11 bankruptcy proceeding.

UAL's 9¾% notes due 2021, rose 3 points to 10 bid, 11¼ offered, a trader said.

"We saw the bonds cross at about 9 bid mid-day and they closed up a point or so from that," he said.

The bankrupt airline said it continued to generate positive cash flow in the month and also met its special bankruptcy financing covenants for the sixth month in a row.

The carrier said its system-wide unit revenue improved 10% year-over-year as it continued to focus on reducing costs. The industry's system-wide unit revenue rose 8.1% in July from a year earlier, according to the Air Transport Association, an industry trade group.

United said it ended July with a cash balance of $2.3 billion, including $714 million in restricted cash.

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