HealthSouth mixed; Reliant sustains earnings drop; WorldCom steadies after several rocky sessions

By Carlise Newman

Chicago, Aug. 13 - HealthSouth Corp. was still the name of the day Wednesday after the battered health care provider said Tuesday that it had paid $117 million in past-due interest under various borrowing agreements. The company also said it has begun talks on an exchange offer for its 3.25% convertible notes.

HealthSouth's bonds were mixed, but mainly lower. HealthSouth's 8.3% notes due 2011 fell a point to 83½ bid. After the news Tuesday, the 8.3% notes were quoted up two points at 83½ bid, 85½ offered.

HealthSouth's 6 7/8% notes due 2005 were seen falling a point to 89 from 90 bid on Wednesday, while its 8½% notes due 2008 also fell a point to 87 bid from 88 bid.

However the subordinated 10¾% notes due 2008 firmed to 83 from 80 bid.

"Today the bonds were mixed on the Street and traded pretty actively," a trader said.

HealthSouth said it paid all the overdue interest owing on its bank debt and notes, a total of $117 million. The Birmingham, Ala. company also said it has begun talks with holders of its 3.25% convertible subordinated debentures on an exchange offer. HealthSouth owes $344 million in principal on the convertibles, which matured on April 1.

HealthSouth said it was able to make the overdue interest payments thanks to improving liquidity from operations and asset sales. It also intends to make upcoming interest payments. Before making the interest payments, HealthSouth had $445 million of cash.

"The bonds had their big move yesterday, but there isn't much else going on it's a light-volume day, so they swung around a bit," a trader said.

Reliant Resources Inc. was also "moving big" after it posted a surprise second-quarter loss and again cut its full-year earnings target on Tuesday. The energy company also said it will undergo another round of restructuring.

Reliant's 9½ % notes due 2013 were seen dropping another 1½ points Wednesday, to end the session at 84½ bid, 85½ offered, a trader said. The 9¼% notes due 2010 and the 9½% notes due 2013 continued to slide, to 83½ bid from 85 bid, traders said.

The bank debt was trading in closely in range with the bonds, falling ½ point to 85 bid, a trader said.

Its 5% convertibles lost another 3.5 points to 68.5 bid, 69.5 offered.

On Monday Reliant said it had laid off employees people as part of cost-cutting efforts.

Reliant's second-quarter net loss was $5.9 million from year-earlier net income of $175.8 million. Revenue rose to $2.83 billion from $2.19 billion.

The latest results included earnings from its soon-to-be-sold European operations of $20.6 million, down 62% from a year earlier. Excluding those results, as well as $862,000 in costs related to an accounting change, Reliant said its loss from continuing operations came to $27.4 million.

Earnings before interest and taxes at Reliant's retail-energy segment fell 50% to $101 million on increased supply costs and higher expenses.

Reliant is now forecasting 2003 earnings of 10 cents a share. In May the company trimmed its full-year earnings target to 50 cents to 70 cents a share from 90 cents to $1.10 a share.

"The paper fell several points after they dropped the bomb and steadied a little today," one trader said.

Elsewhere, WorldCom Inc.'s bonds, which had fallen after the bankrupt telephone company projected weaker net income in the next three years, were "mostly unchanged" to end the session at 27 bid, 28 offered, a trader said.

WorldCom said on Monday it could see its net income fall between $36 million and $250 million over three years, depending on the length of its ban from winning new government contracts. If the company fixes by concerns about internal controls and business ethics raised by the government by Nov. 1, WorldCom said its net income would fall $8 million to a projected $527 million this year.

Net income for 2004 would be reduced $16 million to $1.057 billion and $12 million to $1.179 billion in 2005, WorldCom said in a filing with the Securities and Exchange Commission.

In addition, WorldCom said Wednesday it named ADC Telecommunications Inc.'s chief executive, Richard Roscitt, as president and chief operating officer.

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