HealthSouth levels jump into the 97, 98 context as refinancing talk surfaces

By Sara Rosenberg

New York, Jan. 21 - HealthSouth Corp.'s bank debt headed higher by about two points on Wednesday, shrugging off higher estimates of the cost of accounting problems at the company, as rumors circulated that the company might pay down and/or refinance its revolver debt.

The paper was quoted at 97 bid, 98 offered, compared to previous levels of 95 bid, 96 offered, according to a trader.

"I saw it at 971/2, 98½ but then it tightened a little bit to 97, 98. They had a lender call and said they're looking into refinancing their bank debt because there are inefficiencies. There's a rumor that they may do a bond deal to pay down their revolver and possibly even reduce their revolver size," the trader said.

"We have to develop a much more cash efficient management system," company officials said during the late day Tuesday conference call. "In the coming weeks we will be looking at doing a refinancing."

As investors contemplated this potential pay down, they ignored the latest estimate that the company's accounting problems would reach $3.5 billion to $4.6 billion, a figure revealed during a stockholder meeting Tuesday. At July 7, the company anticipated about $3.5 billion plus in accounting errors.

This is the second day in a row that HealthSouth has rallied by about two points since opening.

On Tuesday, the company moved to 95 bid, 96 offered on the heels of the new term loan announced by the company Friday, according to a trader.

Credit Suisse First Boston was the lead bank on the new $355 million senior subordinated term loan with an interest rate of 10.375% per annum, which was used to refinance the company's 3.25% convertible subordinated debentures due April 1, 2003.

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

HealthSouth is a Birmingham, Ala., provider of outpatient surgery, diagnostic imaging and rehabilitative healthcare services.

NRG inches closer to call price

NRG Energy Inc.'s bank debt may start inching closer to its 103 call protection level, a trader speculated late in the day Wednesday, as talk was floating around the market throughout the day that the company may pay down about half of its term loan B debt with a rumored $500 million bond offering.

And in fact, the rumor proved very close to precisely true as the company priced a $475 million add-on to its 8% notes due 2013 after the market close on Wednesday via Credit Suisse First Boston and Lehman Brothers. Proceeds will go to repay bank debt.

The term B was being quoted at 103¼ bid, 103¾ offered by the end of the day on Wednesday basically unchanged from previous levels, the trader added.

NRG is a Minneapolis-based power company.

Amphenol up on earnings

Amphenol Corp.'s bank paper was up slightly following the release of fourth-quarter numbers that showed positive momentum pretty much across the board and beat analysts' expectations.

The debt was quoted at around par 7/8 bid, 101 1/8 offered, according to a trader.

"It's up about a quarter on the numbers," the trader said. "You could get north of 101 bid on it but it's not really trading. It's a low coupon name. It's put away pretty well. You don't have a lot of sellers. Not that there are a lot of sellers on anything these days but why sell something that's performing?"

On Wednesday, the company announced that fourth-quarter 2003 diluted earnings per share increased 42% to $0.74 compared to $0.52 per share for the 2002 period. The average analyst estimate was for earnings per share of $0.67.

Sales for the quarter increased 28% to $342.04 million compared to $267.05 million for the 2002 period.

For the year ended Dec. 31, diluted earnings per share before refinancing costs was $2.52 compared to $1.85 per share for 2002. Including refinancing costs, diluted earnings per share for the year ended was $2.36.

Sales for the year were $1.24 billion compared to $1.06 billion for 2002.

"I am extremely pleased with our fourth-quarter results," said Martin H. Loeffler, chairman and chief executive officer, in the company's earnings release. "In addition to excellent overall top line growth, profitability and cash flow continued to be strong.

"Earnings per share for the quarter was up 42% over last year and represents the eighth consecutive quarterly increase. Earnings per share for the year of $2.52 per share, excluding the one-time refinancing expenses, matches our all-time record year of 2000. Our consolidated operating income margin for the quarter was strong at 16.8%, representing both a sequential and year-over-year increase. Cash flow from operations was also excellent at $54.1 million for the quarter and $159.4 million for the year.

"During the year, we have reinvested the strong cash flow in the business and also reduced our outstanding debt by $101.3 million."

"Assuming a continuation of the current economic climate and relatively stable currency exchange rates, I believe that in 2004 we can achieve an increase in revenues in the range of 8%-11% and an increase in EPS in the range of 16%-21% (excluding the 2003 one-time refinancing expenses)," Loeffler added in the release.

Amphenol is a Wallingford, Conn., producer of electronic and fiber optic connectors, cable and interconnect systems.

Three deals launch

Wellman Inc. held a bank meeting for a proposed $600 million credit facility that was said to have gone "very well" with good attendance, according to a market source. However, since price talk is not yet out on the deal, there is no talk of commitments at this point, the source added.

The facility consists of a $175 million asset-based revolver with price talk of Libor plus 250 basis points, a $300 million second lien term loan and a $125 million first lien term loan. There is no price talk on the term loans at this time since the syndicate is hoping to get a read on investor sentiment prior to pricing due to this first lien, second lien structure.

Deutsche Bank Securities Inc. and JP Morgan Securities Inc. are the lead banks on the deal.

Proceeds will not only be used to refinance the company's revolver, private placement notes and financial instruments, but the proposed credit facility would also be used to repay a $150 million sale and leaseback obligation entered into in 1999, a $28 million accounts receivable securitization program and an $87 million prepayment of a raw material contract.

Wellman is a Shrewsbury, N.J., manufacturer and marketer of polyethylene terephthalate packaging resins and high-quality polyester products.

Express Scripts Inc. held a bank meeting for a proposed $800 million credit facility that is expected to do well based on the company's overall performance.

The facility consists of a $400 million five-year revolver, a $200 million five-year term loan A and a $200 million six-year term loan B with price talk of Libor plus 175 basis points, according to a source.

"It's a great company. Tough to say at that spread but I would think it would go well," a source said.

Credit Suisse First Boston and Citigroup are the joint lead arrangers on the deal.

Proceeds will be used by the St. Louis-based independent pharmacy benefits manager to help fund the acquisition of the capital stock of Orlando, Fla.-based CuraScript Pharmacy Inc. and CuraScript PBM Services Inc. for $335 million, and to refinance debt. The acquisition is expected to close during the first quarter of 2004.

United Rentals Inc. held a bank meeting for a proposed $1.5 billion credit facility that is also expected to syndicate smoothly simply looking at the company's reputation.

"It's a well established name," a market source said. "People are comfortable with the name. The credit is improving. Pricing is a little aggressive but what isn't these days? We just have to wait for more supply to widen out pricing."

The facility consists of a $650 million revolver and an $850 million term loan B talked at Libor plus 225 basis points.

JPMorgan, Bank of America and Credit Suisse First Boston are the lead banks on the deal, with JPMorgan listed on the left.

Proceeds, combined with proceeds from at least $1.375 billion of new notes, will be used to help fund the company's previously announced refinancing plan that includes refinancing $640 million of term loans, all borrowings under the company's revolving credit facility, $860 million principal amount of 10¾% senior notes due 2008, $300 million principal amount of 9¼% senior subordinated notes due 2009 and $250 million principal amount of 9% senior subordinated notes due 2009.

United Rentals is a Greenwich, Conn., equipment rental company.

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