HealthSouth and WorldCom activity lessens; Level 3 Communications gets boost

By Carlise Newman

Chicago, Sept. 2 - Tuesday's distressed debt trading was all about odds and ends, with a few popular names such as HealthSouth and WorldCom Inc.

HealthSouth Corp. bonds weakened slightly Tuesday after rallying much of the week last week. The 7 5/8% notes due 2012 fell 1 point to 86 bid, 88¼ offered, a trader noted. The 10¾% notes due 2008 fell ½ point to 85½ bid, 86½ offered.

Last Thursday HealthSouth said its lending banks waived a payment blockage, allowing past-due interest to be paid to the holders of the company's subordinated debt.

Activity in WorldCom Inc. debt also dwindled somewhat on Tuesday.

"I think it was just a quiet session overall. Not much was going on, just some WorldCom trades here and there and some other things were taken care of," a trader said.

WorldCom's bonds were quoted at 30 bid, 31¼ offered, ¼ of a point higher than last Friday, when the shortened session saw them ¾ higher.

Last Wednesday, Oklahoma attorney general Drew Edmondson charged WorldCom, its former chief executive Bernie Ebbers and five others with violating state securities laws by knowingly giving false information to investors. The charges contend that the company and the former executives used deceptive measures to defraud investors, lied about the company's financial health and ran a business that operated as a fraud.

On Tuesday, news reports said that the bankrupt telephone carrier could see $7 billion in future tax breaks disappear through new rules for bankrupt companies adopted by the U.S. Treasury.

The Treasury Department on Friday issued a temporary regulation on tax breaks for companies that have declared bankruptcy. If a parent company declares bankruptcy and shields canceled debt from taxes, a subsidiary can lose tax breaks in the amount of debt that was forgiven in the company's reorganization, Treasury and the Internal Revenue Service said.

Citing legal experts, the reports said the Treasury ruling could be a cash drain on the company and force reconsideration of its bankruptcy plan.

"It's odd...whatever negative news hits this company, the bonds just don't seem to react," a market participant said. "It may be a question of how much impact news reports are having during these quiet days."

Elsewhere, telecommunications company Level 3 Communications Inc. was seen trading "in small lots" on Tuesday. The 9 1/8% notes due 2008 were quoted up 1 point to 80½ bid, 81½ offered, while the 11% notes were seen at 87 bid.

While there was no obvious news, "the bonds likely caught a bid from the Buffett news Friday," a trader said.

The legendary Wall Street investor revealed Friday he had bought a substantial amount of Nextel's bonds and preferred shares in the year's first half. Buffett's Berkshire Hathaway Inc. bought at $468.2 million worth of bonds and preferred stock in Nextel Communications Inc., news reports quoted filings with insurance regulators as showing. Buffett has previously invested in Level 3 via an investment in convertible bonds from Berkshire Hathaway.

"We had a few less trades today than Friday but there was still interest there," a trader said of the Level 3 action.

Meanwhile, Calpine Corp.'s bonds were "a little better" Tuesday, a trader said.

The San Jose, Calif.-based power generating company's 8¾% notes due 2013 firmed 1 point to 90 bid, 92 offered and its 8½% notes due 2008 were up ½ point at 90½ bid, 91½ offered.

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