HealthSouth active after trading resumes; Adelphia firmer on new CFO hire

By Carlise Newman

Chicago, March 21 - HealthSouth Corp. again commanded attention in the distressed debt markets Friday after the Securities and Exchange Commission suspension of trading in the company's securities expired at 12 a.m. In addition, Fleming Companies Inc.'s debt continued to face uncertainty about the company's prospects as talk about bankruptcy lingered in the markets.

On the upside, Adelphia Communications Inc. debt clambered higher after the company announced it hired a new chief financial officer with "proven turnaround expertise."

HealthSouth resumed trading at 12 a.m. Friday after a two-day suspension by the SEC after the regulator charged the company and its top executives with fraud. Traders on Thursday anticipated the end to the halt, debating whether to head back to the desks at midnight or to wait until morning.

After all the commotion and at day's end, the company's bonds ended very close to levels where they had last traded at around lunchtime Wednesday - before those trades were unwound after word of the SEC halt spread through the market. One distressed debt trader (who pointed out he did not come back to trade at midnight) said HealthSouth's bonds "opened at around 40, traded as high as 50" and closed in the mid-40s. Another trader quoted the 7 5/8% notes due 2012 at 44 bid/46 offered at the close.

That is compared to prices as high as 94 bid/96 offered Wednesday morning, before news of the fraud charges was released. Afterward, the bonds dropped 50 points, landing at 48 bid/50 before the trading halt.

"That was a really chaotic day, especially with all the unwinding," said the trader.

The SEC on Wednesday charged HealthSouth's chairman Richard Scrushy with orchestrating an accounting fraud that allegedly overstated the company's profits by $1.4 billion. The SEC alleged Scrushy, who also serves as chief executive, routinely directed senior executives and accounting officers at the company to overstate earnings to meet or exceed Wall Street's expectations.

HealthSouth faces further troubles in the future now that banks have blocked HealthSouth from drawing down on the rest of its $1.25 billion revolving credit facility.

The Birmingham, Ala.-based owner of hospital chains has a $345 million convertible bond coming due April 1, and with its credit facility frozen, bank sources speculate that it won't make the payment. A distressed trader quoted HealthSouth's bank debt ending the day at 47.5 bid/48.5 offered.

The markets were muted on Friday with the country watching Iraq. The United States unleashed its full military might against Iraq with waves of air strikes that turned much of Baghdad into flames as Washington declared President Saddam Hussein was "finished."

"Basically today, if you weren't doing HRC, you weren't doing anything at all," said a distressed debt trader, of the market activity.

Fleming's bonds saw mixed quotes Friday, with no new news to digest and continuing rumors of bankruptcy plaguing the company.

One trader quoted its 10 1/8% senior notes due 2008 at 36 bid/37.5 offered, down about a point from Thursday's levels of 37 bid/38 offered.

"Fleming is just hanging in there until more news comes out about its future," said a market source. "Rumors about meetings with the banks, stuff like that pops up all the time now."

The companies' bonds and bank debt have been sliding in recent days as it struggles with its debt load, an investigation by the SEC, and a poor earnings report from its retail supermarket operations, which are on the sale block.

Fleming's term loan B was quoted at 90 bid/93 offered, unchanged from Thursday's levels.

But at another desk Fleming's bonds were seen having bounced a bit from what were called previously oversold levels. This person put its 10 1/8% senior notes due 2008 1½ points better at 38.5 bid, and its subordinated debt also up 1½ points, with Fleming's 10 5/8% notes due 2007 at 14.5 bid/15.5 offered, and its 9 7.8% notes about a point behind the 10 5/8s.

Last but not least, the only true bright spot on Friday was Adelphia, which rallied on news that the company had hired a new CFO who has turnaround expertise and pledged to restore financial integrity to the company.

Adelphia's 10 7/8% notes due 2010 were higher at 43 bid/45 offered compared to 42.5 bid/44.5 offered Thursday, while its 10¼% notes due 2006 were up about a point at 48.

Vanessa Ames Wittman, the former chief financial officer at 360networks, was named executive vice president and chief financial officer at Adelphia. While at 360networks, a Canada-based network services firm, she helped the company emerge successfully from Chapter 11 in the United States and CCAA protection in Canada. The company emerged from bankruptcy in November 2002 after restructuring both its balance sheet and operations.

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