Conseco debt rallies on emergence from bankruptcy; HealthSouth continues to decline

By Carlise Newman

Chicago, Sept. 10 - Conseco Inc. bonds were well on their way out of distressed debt land Thursday after the company emerged from bankruptcy late Wednesday. Conseco said its reorganization plan became effective, therefore allowing it to exit Chapter 11 protection.

The bonds have been rising this week in anticipation of the emergence. On Thursday, the extended bonds opened at 86, unchanged from late Wednesday, but rose another 2 points by the end of the day to end at 88 bid. Likewise the unextended bonds, which were seen at 53½ bid at the close.

"Over the last few days the bonds have been up a total of 15 points or so," a trader said. "That's really something."

Under the terms of the plan, the company has emerged as a Delaware corporation with a new capital structure consisting of a $1.3 billion secured bank facility; new convertible preferred stock with a liquidation preference of $860 million; new warrants to purchase 6 million shares of common stock at $27.60 per share; and 100 million shares of new common stock.

Exchange note claims will receive 60.6 million shares, a recovery of 72%; general unsecured claims will receive 1 million shares, a recovery of 22%; and trust original preferred securities holders will receive 1.5 million shares, a recovery of 1.27%.

Meanwhile, HealthSouth Corp. bonds continued their slow, painful descent, as more negative press weighed on the company.

HealthSouth's 6 7/8 % notes due 2005 were quoted at 81 bid, 83 offered, 2 points lower than Wednesday's levels.

The U.S. Securities and Exchange Commission said on Thursday that it has sued two former chief financial officers of healthcare services group HealthSouth Corp.

Michael Martin and Malcolm McVay were accused by the SEC of taking part in the accounting fraud scandal surrounding the Birmingham, Ala.-based healthcare provider.

Martin and McVay pleaded guilty in May to criminal charges for their part in the $2.5-billion accounting scandal at Alabama-based HealthSouth, an operator of surgical, diagnostic and rehabilitative healthcare centers.

Fourteen former HealthSouth officers have pleaded guilty to criminal charges and agreed to cooperate with continuing Justice Department and SEC investigations.

"The bad news is never-ending for that company. Oddly though, they haven't tanked as much as they could under all that pressure. There's some confidence in the company," a trader said.

Global Crossing Inc.'s debt was still positive on reports that Singapore Technologies Telemedia's bid to buy the company could be approved as early as this week.

The state-owned telecom firm and U.S. officials reached an agreement on network security last Friday.

The bonds were up ½ point, to 6½ bid, 7 offered, a trader said, and up 3 points for the week.

"That's not a bad move. If we're lucky when the deal is sealed we'll see them in double digits," he said.

Telemedia agreed to pay $250 million for a 61.5 % stake in the bankrupt telecom carrier. The deal had earlier met with resistance from security officials on concerns about a foreign business buying an American firm that handles sensitive national security data.

News reports this week said President Bush was likely to approve the Telemedia bid for Global Crossing.

Mirant Corp. debt was on the move again Thursday after news came out that a court ruling on the Pepco contract will occur next week.

Mirant's 8.3% notes due 2011 were quoted at 77 bid, 79 offered, about 1½ points lower than Wednesday, one market source noted.

A federal bankruptcy court judge will decide next week whether the Federal Energy Regulatory Commission can force bankrupt Mirant to honor power supply contracts with Pepco Holdings Inc. The U.S. Bankruptcy Court, which has issued a temporary restraining order barring FERC from requiring Mirant to continue buying or selling power to Pepco, will issue its ruling on Wednesday, news reports said.

Mirant has sought to cancel back-to-back contracts it inherited as part of the 2000 purchase of four power plants for $2.65 billion from Pepco.

"The bonds may or may not have been reacting to the news today but overall energy has been lagging for a little while," the market source said.

Elsewhere, WorldCom Inc. was still traded heavily Thursday. The bonds were up ½ point at 32 bid, 32½ offered. The MCI paper was seen at 78 bid, bid, 79 offered, also up ½ point.

Ashburn, Va.-based WorldCom reached an agreement with its creditor groups early Tuesday. Under the arrangement, holders of WorldCom senior debt - both bank debt and notes - which were to be repaid 36 cents per dollar for their claims will now receive 52 cents on the dollar. A second group that was also unhappy with the original plan will now be paid 44.5 cents on the dollar.

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