HealthSouth's new CFO looking to repay debt, improve balance sheet

By Jennifer Lanning Drey

Portland, Ore., June 24 - HealthSouth Corp.'s new chief financial officer considers finding opportunities to repay debt and improving the company's balance sheet to be top priorities, Jay Grinney, chief executive officer of HealthSouth, said during a Thursday presentation at the Wells Fargo Healthcare Conference in Boston.

"While there's nothing obvious [in terms of debt repayment alternatives in 2010], we're definitely going to be monitoring the market on a real time basis and taking advantage of whatever conditions may exist," Grinney said.

HealthSouth named Douglas Coltharp chief financial officer on May 6.

Grinney also noted Thursday that Coltharp's philosophy is concerned with both how much overall debt the company has, as well as what the debt actually looks like.

"We'll be focusing not only on the absolute leverage amount, but we're also going to be looking at the quality of that capital structure and the maturities so we don't face any large maturity at any given time that might threaten the company," he said.

Long-term leverage target

HealthSouth has had a longstanding goal of achieving a leverage ratio of 3.5 times to 4.0 times by the end of 2011 and is on track to meet that goal with a current ratio of 4.2 times, Grinney said.

However, the company will ultimately look to drive its leverage ratio even lower to help position it to explore entering into adjacent post-acute services in the future, he said.

"Longer term, we think a leverage ratio of about 3 times will give us the kind of head room that allows us to absorb any kind of regulatory risk or exogenous risk that might be facing the company," he said.

Earlier in the presentation, the CEO said the company didn't expect to be in a position to explore adjacent post-acute services until 2012 or 2013.

"A lot of that is driven by our desire to continue to improve our capital structure and our balance sheet," he said.

Grinney also noted that HealthSouth expects to generate additional free cash flow in 2011 as swap settlements roll off and will also look first at applying that cash to the capital structure and balance sheet.

Improving EBITDA

In addition to seeking opportunities to reduce its leverage ratio through debt repayment in the near term, HealthSouth also plans to reduce the ratio through EBITDA growth, Grinney said.

The company's near-term growth is expected to come from organic same-store growth in its core business, supplemented with the addition of beds at existing hospitals.

HealthSouth also plans to grow by building at least two new or de novo hospitals and making at least two acquisitions per year.

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

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