HealthSouth rises as optimism sinks in; WestPoint Stevens bank debt gains; WorldCom trades

By Carlise Newman

Chicago, June 6 - HealthSouth Corp.'s bonds were in the spotlight Friday after a week of positive rumors on its future and a news report Friday that indicated the company may be in better shape than in recent months.

HealthSouth said it won't sell its flagship hospital in Birmingham, Ala., Friday's Wall Street Journal reported.

A variety of rumors have swirled around the company this week, ranging from the company avoiding bankruptcy, to the company having a prepackaged bankruptcy in the works, to who may buy the company, but it was all positive talk for HealthSouth's bonds.

Healthsouth's 7 3/8% senior notes due 2006, were seen at 78 bid, 80 offered, up from 77 bid Thursday and higher than the 76.5 bid, 78.5 offered levels on Tuesday. The 8½ senior notes due 2008 were seen at 77 bid, 78 offered, a point higher than Thursday and well up from levels in the upper 60s in recent weeks.

"The bonds are zooming because of the activity this week and a better attitude about the company. The Journal story just fueled that today," a distressed debt trader said.

In April, the interim management team at HealthSouth, installed after the company's board fired founder and former chairman Richard Scrushy, said it was seeking to raise cash by selling its hospital in Birmingham and a hospital in Miami.

But in a letter sent yesterday to employees, the Birmingham, Ala.-based hospital and physical therapy chain operator said the Birmingham medical center's "future potential far outweighs any immediate benefit from selling the facility," according to the Journal report.

The Miami hospital remains for sale.

WorldCom Inc.'s bank debt was "somewhat active" Friday, a distressed debt trader said, trading at 30¼ bid, 31¼ offered, about a half-point higher than Thursday's levels as well.

"They were better bid today. That was one thing going on, that and the Mets game," the trader said.

Another Wall Street Journal report Friday indicated that WorldCom's former chief executive, Bernie Ebbers, could be implicated for fraud.

An investigative report into WorldCom's accounting said investigators found that Ebbers spoke with top executives in October 2001 about one-time items that could boost revenue in a quarter that was set to miss analyst targets, according to the newspaper.

The report, commissioned by the company and produced by an independent team, is scheduled to be issued Monday, the paper said.

Investigators also found a voicemail left by former chief financial officer Scott Sullivan for Ebbers in which Sullivan said the quarter's results included too much "fluff," the Journal reported.

"We are going to dig ourselves into a huge hole," Sullivan said on the voicemail message, according to the investigators, the Journal reported.

The Journal also reported that investigators found an e-mail message from an accounting employee to Sullivan stating that Ebbers wanted employee sales commissions to be based on "operational" revenue numbers rather than the higher revenue figures that were publicly reported.

WorldCom filed for bankruptcy in July under the weight of $41 billion in debt and an accounting scandal that is expected to top $11 billion.

WestPoint Stevens Inc.'s bank debt was still moving higher, a distressed debt trader said, to 97¾ bid from levels Wednesday around 95.

"They've been really active, really up there, and a lot has traded," the trader said. "They're not a big mover usually but there was all the news this week."

WestPoint Stevens released details of its restructuring Thursday and said noteholders will receive new notes and 30% of its common stock plus rights to subscribe to further notes and the remaining stock under its proposed restructuring agreement.

Under the terms of the restructuring, holders of $525 million 7 7/8% senior notes due 2005 will receive $175 million in 8% unsecured subordinated pay-in-kind notes due 2009. Holders of $475 million 7 7/8% senior notes due 2008 will receive $175 million in 8% unsecured pay-in-kind notes due 2012.

Both are contractually subordinated to the new senior credit facility and new senior secured notes.

Noteholders will also receive 30% of the new common stock of the reorganized company.

Noteholders also have a right to subscribe in cash for $166.7 million of 8% senior secured notes due 2009 secured by a second priority lien on all of the company's assets, redeemable at par by WestPoint at any time; and 70% of the new common stock of the company.

Holders who exercise their rights will be entitled to receive a payment from WestPoint equal to 1% of the amount of senior secured notes for which they subscribe.

The WestPoint, Ga.-based home fashions manufacturer's senior credit facility will be replaced by an exit facility.

Terms for unsecured creditors has not been determined yet, according to a document filed with the Securities and Exchange Commission.

Holders of old common stock will receive nothing.

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