HealthSouth gets consents from 7 5/8% notesholders

New York, June 18 - HealthSouth Corp. said that more than a majority in principal amount of the holders of its 7 5/8% senior notes due 2012 have delivered consents to approve proposed amendments to, and waivers under the indenture governing such notes as part of the company's consent solicitation to the holders of several series of its notes.

HealthSouth said it delivered evidence of its receipt of the required consents to the trustee, making these consents irrevocable.

It also said it was working toward completing the consent solicitations for five series of its notes. It emphasized that if the conditions to a consent solicitation are satisfied, any noteholders who do not deliver valid consents prior to the expiration date of such consent solicitation will not receive a consent fee.

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 several times.

The consent solicitations were seeking 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 initially said that holders of notes delivering consents and waivers prior to the expiration of the consent solicitations would receive a consent fee of $10 in cash per $1,000 principal amount of notes held (this was later increased). It said the payment of the consent fee would be conditioned upon the proposed amendments to the indentures and the waivers becoming operative.

The company said that the proposed amendments would, as a consensual matter, temporarily suspend HealthSouth's requirement 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 the 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 would 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 would also be 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.

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. On April 29, HealthSouth again extended the consent solicitation, to 11:59 p.m. ET on May 13, subject to possible further extension.

The company also announced that it was increasing the consent fee offered to holders delivering 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.

HealthSouth also announced that it was modifying certain of the terms of the proposed amendments. It said each holder of notes consenting to the proposed amendments would 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.

After receiving consents and waivers from holders representing a majority the 8½% notes and holders representing 89.21% of the 10¾% notes, HealthSouth said it was continuing its efforts to solicit consents from the holders of the other five series of notes - its 6 7/8% senior notes due 2005, its 7 3/8% senior notes due 2006, its 7% senior notes due 2008, its 8 3/8% senior notes due 2011 and its 7 5/8% senior notes due 2012 - and was extending its consent solicitation to 11:59 p.m. ET on May 20, subject to possible further extension, from the previous deadline of 11:59 p.m. ET on May 13.

HealthSouth further said that it was amending the consent solicitations for the 6 7/8% notes, the 7 3/8% notes, the 7% notes and the 8 3/8% notes, to eliminate the condition to each of these solicitations relating to the successful completion of any other consent solicitation. As amended, each of these consent solicitations is independent of the consent solicitation for any other issue of senior notes.

On June 8, HealthSouth said it had reached an agreement with the unofficial noteholders' committee to obtain consents and waivers and would offer its noteholders more money for their consents.

It set June 4 as the record date for these amended consent solicitations and said noteholders would have until June 23 to give their consents.

HealthSouth said it would pay $30 per $1,000 principal amount of notes to holders of its 8 3/8% senior notes due 2011, 6 7/8% senior notes due 2005 and 7 3/8% senior notes due 2006; $32.50 per $1,000 principal amount of notes to holders of its 7% senior notes due 2008; and $45 per $1,000 principal amount of notes to holders of its 7 5/8% senior notes due 2012.

HealthSouth had previously offered $13.75 per $1,000, causing noteholders to call its offer inadequate.

HealthSouth also agreed to amend its 7 5/8% senior notes due 2012 and 8 3/8% senior notes due 2011 to add a put option on Jan. 2, 2009; and to amend its 7% senior notes due 2008 to provide a put option on Jan. 15, 2007.

It said that completion of the solicitations, together with the previously completed consent solicitations for its 10¾% senior subordinated notes and its 8½% senior notes due 2008, would result in the successful completion of consent solicitations of all of the company's outstanding public debt, totaling $2.6 billion.

The company said the cost of the restructuring is expected to be in the range of $73 million to $80 million, depending on how many consents it gets.

HealthSouth said payment of the consent fee would be conditioned upon the proposed amendments to the indentures becoming effective. Previously delivered consents were declared invalid. Holders as of the record date wishing to consent must submit new consents in order to receive the increased consent fee.

Noteholders who provide consents are waiving all alleged and potential defaults under the indentures occurring before the amendments take effect.

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 212 750-5833; noteholders call 888 750-5834).

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