WorldCom settlement approved; Owens Corning weighed by legislation

By Carlise Newman

Chicago, July 7 - WorldCom Inc., Owens Corning and HealthSouth were the actively traded names Monday during a session leaden with extended vacations from Friday's Independence Day holiday.

Because the news emerged late, WorldCom didn't have a significant reaction one way or the other to the news that a federal judge approved its plan to pay $750 million to settle fraud charges in its historic accounting scandal. The settlement calls for the company to pay $500 million in cash and $250 million in new stock in the reorganized company.

WorldCom's 7½% notes due 2011 fell 1½ points to 27 bid, 29 offered, a trader said, and had been "dropping pretty steadily, a point or a half every day" last week leading up to Monday's decision.

"I wouldn't say the bonds were falling in anticipation of the settlement news for sure, but it appeared that way," he said. "They didn't have much time to react [Monday] because the report came out just before the close."

The stock will be distributed to bondholders and shareholders. The monetary fine was initially set at $1.5 billion, and later increased to $2.25 billion to reflect a revised settlement, but the Ashburn, Va.-based Internet and wireless provider will only pay $750 million because it is in bankruptcy.

The settlement still must be approved by the bankruptcy court.

Owens Corning was also "hopping," a distressed debt trader said. The 7½% notes due 2008 were quoted falling 3 points to 47 bid, 50 offered. Owens Corning and other "asbestos names" had been fairly active in recent weeks during the "asbestos-related legislation saga" a trader said.

Last Thursday, insurers threatened to withdraw their support for a Senate proposal to set up a national fund for compensating asbestos victims, saying the price tag may be too high. The warning from the American Insurance Association threatened to unravel a deal between business and insurers constructed over months of talks and nearing a committee vote this week.

Injury claims have driven 67 companies into bankruptcy, including Owens Corning, a buildings material manufacturer, and auto parts supplier Federal-Mogul Corp.

"Iusacell's bonds were falling last week and are starting the week off the same," a trader said, noting that the 10% notes due 2004 were at 56 bid, 59 offered, "a good two points" lower than Friday.

Last week, Iusacell failed to make a $25 million coupon payment, originally due June 1, within the 30-day grace period allowed on its 14.25% bonds due 2006. As a result, the company is in technical default and bondholders have the right to declare the principal and accrued interest of the 2006 bond due and payable or take other appropriate legal action.

HealthSouth Corp. told employees Monday in a conference call that it may be able to stave off bankruptcy, echoing a Wall Street Journal report last week (see story on page one of this issue). The Birmingham, Ala. physical therapy provider said it is expecting net revenue of $4.1 billion and free cash flow of $328 million over the next 12 months.

HealthSouth's bonds rose "three points across the board," a trader said, quoting the 6 7/8% notes due 2005 at 88 bid, 89 offered, while the 8½% notes due 2008 rose to 86 bid, 88 offered. The bank debt was also seen up two points to 80 bid, 82 offered, a trader said.

HealthSouth said it has a strong liquidity position. The company said it has consolidated book cash of $345 million as of June 27 "and growing" and positive cash flow from operations. It has execited annualized cost savings of $80 million, generated non-core asset sale proceeds of $70 million and is current on all operating payables, generally with normal payment terms

HealthSouth also said it should generate EBITDA of $650 million for the year to June 30, 2004 and the company's divisions are "solid and profitable" according to a Securities and Exchange Commission filing documenting a presentation to employees.

HealthSouth said as of July 1, its total bond and bank debt was $3.3 million and its total net debt is $2.9 million. HealthSouth, which failed to repay a bond that matured in April after its credit line was frozen due to allegations of accounting fraud, is continuing its moratorium on repaying interest and principal on the $3.3 billion of debt.

Last week, the Wall Street Journal said HealthSouth has talked with corporate restructuring firms and investment banks that could help it raise money and was close to finalizing a deal to hire Credit Suisse First Boston as financial advisor - a step now taken, the SEC filing said.

"The bonds really rocketed last week from the Journal report and today they were higher too, but it was in thin trading," a trader said.

Elsewhere, "there were just bits and pieces," a trader said, citing Enron Corp.'s 7 1/8% notes due 2007 down a point to 17 bid, 18 offered. WestPoint Stevens Inc.'s 7 7/8% notes due 2008 were down a half point at 21 bid, a trader said.

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