HealthSouth buys back nearly $2.3 billion of notes, completes recapitalization

By Angela McDaniels

Seattle, March 10 - HealthSouth Corp. has repurchased $2,285,806,000 of notes in connection with its plan of recapitalization, according to a company news release.

The company repurchased $1,996,842,000, or 98.4%, of its outstanding senior notes and $288,964,000, or 90.5%, of its outstanding senior subordinated notes for a total purchase price of $2,530,311,119 during a tender offer that ended March 9.

Notes eligible for tender included the company's $180.3 million 7 3/8% senior notes due 2006, $343 million 8½% senior notes due 2008, $250 million 7% senior notes due 2008, $319.26 million 10¾% senior subordinated notes due 2008, $347.7 million 8 3/8% senior notes due 2011 and $908.7 million 7 5/8% senior notes due 2012.

For each $1,000 principal amount, the company paid $1,012.50 for the 7 3/8% notes, $1,058.75 for the 8½% notes, $1,037.50 for the 7% notes, $1,037.50 for the 10¾% notes, $1,084.81 for the 8 3/8% notes and $1,058.43 for the 7 5/8% notes.

The payouts included a $50.00 consent payment for those who tendered before 5 p.m. ET on Feb. 15. HealthSouth said it received a sufficient number of consents to amend the indenture governing the notes, eliminating substantially all of the restrictive covenants and amending certain events of default.

The tender offer deadline was extended from March 6 and, previously, from March 2.

Global Bondholder Services Corp. was the depositary and information agent (call collect 212 430-3774 or 866 804-2200). Questions may be directed to Merrill Lynch & Co. (888 ML4-TNDR or call collect 212 449-4914), Citigroup Corporate and Investment Banking (800 558-3745 or call collect 212 723-6106) or J.P. Morgan Securities Inc. (866 834-8666 or call collect 212 834-4388).

Other recapitalization details

HealthSouth entered into a credit agreement that provides up to $2.55 billion of senior secured financing with a consortium of financial institutions and an interim loan agreement that provides $1 billion of senior unsecured interim loans, according to the release.

The company used a portion of the financing proceeds, proceeds of the interim loans and $400 million of proceeds from the issuance of 400,000 shares of 6½% series A preferred stock on Tuesday, along with cash on hand, to prepay substantially all of its existing debt and to pay related fees and expenses.

The remainder of the proceeds and availability under the senior credit facilities are expected to be used for general corporate purposes, and HealthSouth anticipates refinancing the $1 billion interim loans in the second or third quarter of 2006 through an issuance of debt securities.

"The new capital structure is a significant step in strengthening our balance sheet," chief financial officer John Workman said in the release.

"It allows us to better execute on key operational initiatives, address the changing regulatory environment, take advantage of the strong capital market conditions and maximize prepayable debt to allow for future deleveraging."

J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and Merrill Lynch & Co. were the co-lead arrangers and joint bookrunners for the $2.55 billion senior secured credit facilities and the $1 billion interim loans. Deutsche Bank Securities Inc., Goldman, Sachs & Co. and Wachovia Capital Markets LLC were co-managers.

HealthSouth is based in Birmingham, Ala., and provides outpatient surgery, diagnostic imaging and rehabilitative health care services.

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