HealthSouth climbs on cash flow news; Mirant, energy sector zoom ahead

By Carlise Newman

Chicago, April 30 - HealthSouth Corp. shrugged off a published report saying it would likely file for bankruptcy by summer, and instead soared in distressed debt trading Wednesday. However, the company also released positive news, assuring doctors in a letter filed with the Securities and Exchange that it has ample operating funds.

Mirant Corp. also surged to better levels Wednesday despite reporting a wider loss for 2002 after completing a re-audit of its finances. But the company also said it found no evidence of fraud after the audit.

HealthSouth said in the letter filed with the SEC that it has enough funds to support its operations and adequate insurance for the doctors. The company added that is has cut 250 corporate positions, is attempting to sell its fleet of aircraft and other vehicles, has scaled back construction on new facilities, and is considering the sale of two acute care hospitals.

The Birmingham, Ala.-operator of rehabilitation and surgery centers also said it intends to announce a new auditor.

HealthSouth's 7 5/8% notes due 2012 rose "three to four points" to 64 bid/68 offered Wednesday, while its bank debt remained unchanged in the "mid-60s," unaffected by a report in the New York Times saying it will probably file for bankruptcy this summer in a prearranged deal with its banks and bondholders.

The report quoted Bryan Marsal, the turnaround specialist serving as chief restructuring officer for the company. Marsal said HealthSouth still had a fairly good chance of ending up strong enough to avoid a bankruptcy filing, and the company will not know its true earning power for another two months.

But he added that it would need $250 million just for annual interest payments, which it has stopped paying for now, and would also have to resume repayments of debt and would need at least $150 million a year for capital spending.

"I'm not surprised this didn't have an impact. It's priced in. I thought they would have filed by now," said a distressed debt trader.

Also facing conflicting news, Mirant's 7 5/8% notes due 2006 were quoted at 72 bid/73 offered, up five points from Tuesday's price of 67 bid/68 offered. The company's bank debt traded stronger at 791/2, 80 on Wednesday, according to a trader, who added that he saw quotes at 83 bid/85 offered later in the session but no trades at those higher levels.

Mirant had delayed reporting financial results and making its annual report filing, including results for two subsidiaries, pending completion of a re-audit of its books for 2000 and 2001 and an audit of its 2002 financials. It reported a net loss of $2.4 billion, or $6.06 a share, for 2002. That compares to $409 million, or $1.19 a share, in restated net income for 2001.

But the loss did not compare to the news that the Atlanta-based electric utility found no evidence of fraud in the audit.

The entire sector moved higher, with San Jose-based Calpine Corp.'s bank debt rose a point to 97½ from 96½ Tuesday.

"These energy companies just keep going. I won't be surprised to see a little profit-taking late in the week," said a trader.

Contributing to investor confidence was Dynegy Inc.'s first-quarter earnings report on Tuesday. Dynegy reported a quarterly profit for the first time in more than a year as several one-time gains and higher power prices helped reverse a year-earlier loss. Dynegy posted net income of $147 million versus a net loss of $247 million in the year-earlier period.

Dynegy's term loan B was "up again, about ½ point" to 96 bid/98 offered.

The Houston-based energy company also raised its 2003 earnings forecast to a range of 10 cents to 18 cents per share for its natural gas and electricity production and regulated energy delivery segments and excluding discontinued operations. Its previous view was 8 cents to 15 cents per share.

In addition, Mission Energy Holding's term loan B traded higher on Wednesday, according to a trader. The loan traded at 61, moved as high as 65, and then came back down to 631/2, the trader said.

Tyco International Ltd.'s bank debt opened at 94 bid/96 offered and rose to 95¾ bid/97¾ offered by the end of the session, according to a trader.

Tyco was hit by a bomb Wednesday, after the Wall Street Journal reported that it would take about $1.1 billion in after-tax charges in its second quarter after unearthing fresh accounting problems, in yet another setback to the conglomerate's credibility with investors.

Tyco put out a news release during the morning with some outline earnings data and advanced its full earnings report and conference call to after Wednesday close from Thursday morning.

The Pembroke, Bermuda manufacturing and services later posted a fiscal second-quarter loss of 23 cents a share compared with a loss of $1.03 a share a year ago.

It said it was taking a $997.4 million charge as a result of its intensified audits and controls and operating reviews, a figure that includes $265 to $325 million previously announced. It also a $364.5 million charge for a change in amortization method at its ADT unit.

"There were no trades in Tyco but it was active. After the first B.S. that came out this morning [with the Journal raising the likelihood of more accounting-related charges], there was definitely a report out there that calmed everyone's nerves," said a trader.

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