HealthSouth reduces senior leverage ratio, boosts confidence in ability to refinance loans

By Jennifer Lanning Drey

Portland, Ore., May 5 - HealthSouth Corp. reduced its senior secured leverage ratio to 2.2 times at March 31, increasing the company's confidence it will be able to refinance its bank lines before they mature in 2012 and 2013, John Workman, chief financial officer of the company, said Tuesday during its first-quarter earnings conference call.

The overall leverage ratio was reduced to 4.9 times.

"Having achieved a 4.9 ratio by the end of the first quarter, we believe our longer-term goal of 3.5 to 4.0 times by end of 2012 is progressively more achievable," Workman said.

The leverage ratio reductions resulted from strong cash flow from operating activities during the quarter, which HealthSouth said allowed it to reduce long-term debt by $85 million.

Adjusted for interest swap payments and dividends on preferred stock, and excluding the benefit of non-recurring items, the company generated $38.7 million of free cash flow during the quarter.

At March 31, long-term debt was $1.73 billion.

Liquidity improvement

HealthSouth's liquidity improved to $490.5 million at the end of the quarter, representing a $151 million improvement from the year-end liquidity position. The quarter-end liquidity included $90.7 million of available cash, some of which is likely to be used to pay legal fees later in the year, Workman said.

"We will continue to be focused on improving our capital structure, and we will continue to be very disciplined in our use of cash with a strong direction to reduce our leverage," he said.

Outside of debt reduction, HealthSouth will also look to grow organically.

"As we look out into the balance of the year and into 2010 and 2011, our business outlook is predicated on our ability to continue to deleverage our balance sheet, grow organically, effectively manage expenses, and longer term, to adapt to regulatory changes affecting our industry," Jay Grinney, HealthSouth's chief executive officer, said during the call.

HealthSouth reported net operating revenues of $475.1 million for the first quarter, compared to net operating revenues of $464.2 million for the same period in 2008. The company said the increase was driven by a 5.7% quarter-over-quarter increase in patient discharges offset by lower pricing.

HealthSouth is a Birmingham, Ala.-based provider of inpatient rehabilitation services.

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