HealthSouth extends, amends solicitation of noteholder consents and waivers

New York, April 29 - HealthSouth Corp. said that it had extended its previously announced solicitation of consents from holders of its 6 7/8% senior notes due 2005, 7 3/8% senior notes due 2006, 7% senior notes due 2008, 8½% senior notes due 2008, 8 3/8% senior notes due 2011, 7 7/8% senior notes due 2012 and 10¾% senior subordinated notes due 2008 to 11:59 p.m. ET on May 13, subject to possible extension, from the previous April 28 deadline.

The company also announced that it is increasing the consent fee that it will pay to holders who deliver valid and unrevoked consents prior to the expiration of the consent solicitations to $13.75 per $1,000 principal amount of notes for which consents have been delivered, an increase of $3.75 per $1,000 from the amount originally offered.

The payment of the consent fee remains conditioned upon the proposed amendments to the indentures becoming operative. Holders who previously delivered valid consents and do not revoke those consents will receive the increased consent fee if the conditions to their consent solicitation are satisfied or waived.

HealthSouth said that it "continues to be encouraged by the significant positive response that it has received in the consent solicitations." However, the company "continues to believe that it is in the best interest of its stakeholders to minimize the extent of litigation over this matter and is increasing the consent fee in order to consensually resolve the matters in the litigation on a fair and commercially reasonable basis in order to facilitate its continuing restructuring efforts."

HealthSouth is also modifying terms of the proposed amendments to the indentures governing its senior notes and senior subordinated notes. Each holder of notes who consents to the proposed amendments will also be waiving all alleged and potential defaults under the indentures arising out of events occurring on or prior to the effectiveness of the proposed amendments.

As previously announced, HealthSouth, a Birmingham, Ala.-based operator of outpatient surgery, diagnostic imaging and rehabilitative healthcare centers, said on March 16 that it had begun soliciting the consent of holders of record (as of March 15) of seven series of its outstanding notes to proposed indenture amendments and waivers of indenture conditions.

The company initially said the consent solicitations would expire at 11:59 p.m. ET on April 13, although this was later extended.

The consent solicitations seek approval of proposed amendments to the notes respective indentures, and waivers under the indentures, to address, on a consensual basis, among other things, issues relating to HealthSouth's inability to provide current financial statements.

The company said that holders of notes delivering consents prior to the expiration of the consent solicitations would be entitled to receive a consent fee of $10 in cash per $1,000 principal amount of notes held by such holders. It said the payment of the consent fee would be conditioned upon the proposed amendments to the indentures becoming operative.

The company said that the proposed amendments would, as a consensual matter, temporarily suspend HealthSouth's obligations under the indentures to furnish compliance certificates to the indenture trustees and to furnish to the SEC periodic and other reports under the federal securities laws, until HealthSouth is able to comply with such reporting requirements.

The proposed amendments, if applicable, also seek to modify HealthSouth's ability to incur certain debt under certain circumstances. Each noteholder who consents to the proposed amendments will also be waiving all alleged and potential defaults under the indentures arising out of events occurring on or before the effectiveness of the proposed amendments.

The proposed amendments will become effective only upon satisfaction or waiver by HealthSouth of certain conditions, including receipt of valid and unrevoked consents from holders representing at least a majority in total principal amount of outstanding notes for a series.

Consent solicitations for series of notes that are governed by the same indentures are also conditioned upon receipt of valid and unrevoked consents from a majority in principal amount of the holders of each other series of notes issued under such indenture.

HealthSouth noted that it had been granted a temporary restraining order by a state court in Alabama (which was later dissolved by the court) preventing noteholders from accelerating any of the notes. The company said that it believed that it was in the best interest of its stakeholders to minimize litigation over this matter. Accordingly, it said that it has determined to proceed with the consent solicitations as a means of consensually resolving these matters on a fair and prompt basis and to modify certain covenants in the existing indentures to facilitate its restructuring efforts.

On April 14, HealthSouth said that that it had extended the deadline on the consent solicitations to 11:59 p.m. ET on April 28, subject to possible further extension, from the originally announced April 13 deadline.

HealthSouth's statement said that the company was "encouraged" by the "significant positive response" received from noteholders so far, and so it decided to extend the consent solicitations "in order to allow all holders the opportunity to participate."

Credit Suisse First Boston is the solicitation agent for the consent solicitation (call 800 820-1653). Innisfree M&A Inc. is the information agent (banks and brokers call collect at 212 750-5833; noteholders call 888 750-5834).

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