HealthSouth bonds, bank debt up on term loan news; Tropical Sportswear bounces

By Paul Deckelman and Sara Rosenberg

New York, Jan. 20 - HealthSouth Corp.'s bank debt was up about two points Tuesday from last week's levels on the heels of the new term loan announcement that the company made on Friday, while its bonds - which had improved Friday - were also seen with a firm tone. Also on the upside was Tropical Sportswear International Corp., whose bonds bounced at least part of the way back after having slid sharply last week on poor quarterly results.

A bank debt trader said that HealthSouth's paper is now being quoted at 95 bid, 96 offered, adding that "the term loan was good news."

On Friday, the Birmingham, Ala.-based provider of outpatient surgery, diagnostic imaging and rehabilitative healthcare services announced that it had refinanced its 3¼% convertible subordinated debentures that came due last April 1, but which were not paid off at that time.

That unpaid obligation - along with federal investigations that produced accusations of massive accounting fraud and guilty pleas to various charges from a number of former company executives - weighed heavily on the company's shares and debt for the rest of the year, although HealthSouth successfully fought off talk that it might go bankrupt, and its bonds recovered from levels in the 50s back to the point that a distressed-debt trader characterized the name as once again "a par bond."

In Friday's dealings, HealthSouth's bonds were quoted up anywhere from one to three points on thin dealings ahead of the market's early 2 p.m. ET close. By the time news of the loan was announced, many shops had already rolled up trading for the day.

On Tuesday, back from the three-day Martin Luther King Day holiday weekend that saw the financial markets closed on Monday, traders continued pushing the bonds up.

HealthSouth's 10¾% notes due 2008, which on Friday had been heard trading up to a range of about 102.5-103.5, firmed again on Monday to as high as 105 bid, traders said.

Its 7 5/8% notes due 2012 were seen at 99.5 bid, 100.5 offered, while its 6 7/8% notes due 2005 were at par bid, 101 offered, about a point or two above Friday's levels across the board.

Better sellers seen in HealthSouth

"HealthSouth paper continues to do very well," a trader said. My sense is that there's better sellers at these levels. A lot of the guys that bought into this stuff at a lot lower levels, in the 40s and 50s and whatever, were hedge fund-type players, and they were unloading up here."

Credit Suisse First Boston was the lead bank on the new $355 million seven-year senior subordinated term loan, which has an annual interest rate of 10 3/8%, payable quarterly, and is callable after the third year with a premium.

As part of the refinancing, HealthSouth also issued warrants with an exercise price of $6.50 per share and a 10-year term to the lender to purchase 10 million shares of common stock.

With this latest refinancing, the company is now current on all of its outstanding principal and interest payments due under its various borrowing agreements.

On Monday, HealthSouth met with investors and held a conference call to update them on the company's efforts to turn itself around from the problems that surface last year - but while it has been making progress, HealthSouth is by no means out of the woods yet.

Reuters reported that officials of Alvarez & Marshal, the turnaround specialists hired last year to right the ship, said during the meeting that the amount of fraudulent entries on the company's books could be as much as $3.8 billion to $4.6 billion - well above the $2.5 billion that company officials estimated last year would have to be restated.

Even so, the company said expects to generate revenue of nearly $4 billion in 2004 and $650 million in EBITDA. It projects it will remain financially viable and healthy the ongoing fallout from the scandal.

Tropical Sportswear bounces around

Elsewhere, Tropical Sportswear's 11% notes due 2008 "were bouncing around," a distressed-debt trader said, pegging them at about 57.5 bid, 58 offered, well up from the levels around 48-50 to which the bonds had skidded last week after the Tampa, Fla.-based apparel manufacturer reported a swing into the red in its most recent quarter. However, he saw no news to justify such a rebound - just a typical snapback from a ridiculously oversold condition. Prior to the earnings news, the bonds had traded in the upper 70s.

The company reported last week that in the fiscal fourth quarter ended Sept. 27, it lost $96.5 million ($8.73 a share) - a sharp turnaround from a year earlier, when it had earned a profit of $1.33 million (12 cents a share).

Sales for the quarter fell 33% to $78.2 million from $117 million a year ago.

Besides the sharp fall-off in sales, the company said that the loss was worsened by what it termed "significant" increases in reserves for excess inventory, and a higher-than-normal returns and sales allowances.

News that Federal-Mogul Corp. and Honeywell International Inc. had terminated discussions about the possible sale of Honeywell's automotive Bendix friction materials business to Federal-Mogul, due to their inability to agree on terms, had little impact on the latter's bank debt or bonds, traders said.

One debt trader quoted the bankrupt Southfield, Mich.-based vehicular parts manufacturer's loans remaining steady in the 92 bid, 93 offered area, despite the news.

"It's pretty much unchanged," the trader said. "We view the news as kind of immaterial. I don't think the market reacted to it [either]."

A distressed-bond trader agreed that Federal-Mogul's bonds "stayed right around the 25-26 area," unmoved by the Honeyell news.

He also saw stricken Italian dairy products producer Parmalat Finanzaria SpA's bonds, including its lone dollar-denominated issue, the 6 5/8% notes due 2008, "staying firm" around the 23-24 bid area.

Air Canada slips

And he quoted Air Canada's bonds offered "a point or two cheaper," even though the troubled airline had gotten the green light from the Canadian court overseeing its restructuring to sell about a one-third stake to Hong Kong-based investor Victor Li's Trinity Time Investments - perhaps reflecting bondholder anxiety that the plan works out to be less generous to debt holders than a rival plan nixed by the court would have been.

He quoted Air Canada's U.S.-dollar denominated bonds offered around 39, while its Canadian dollar denominated bonds were offered at 35.

In the communications realm, Telewest Communications plc paper "was firmer today," a trader said, with the British-based broadband operator's 11% notes trading up to 69.25 before going home left at 68.75 bid, 69.75 offered. Its 11 3/8% notes improved to 51.5 bid, 52.5 offered, which he characterized as a gain of half a point to a point on the day.

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