HealthSouth Warns Bondholders May Force Bankruptcy
JAY REEVES, AP
BIRMINGHAM, Ala. (March 30) - The acting chief financial officer of HealthSouth Corp. testified Tuesday that bondholders seeking quicker debt payments could force the rehabilitation giant into bankruptcy.
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The testimony from Guy Sansone came as HealthSouth tried to convince a court to rule that funds holding about $2.5 billion in bonds don't have the legal right to seek repayment on an accelerated schedule.
Circuit Judge Allwin E. Horn III said he would not rule for at least 10 days on the question, which Sansone characterized as being vital to the future of the scandal-plagued company.
HealthSouth has been struggling for survival since a year ago, when the government accused the company and then-CEO Richard Scrushy of overstating profits by billions.
HealthSouth filed suit earlier this month in its hometown of Birmingham seeking to keep bondholders at bay. It contends bondholders previously waived their right to accelerated payments.
Sansone, a managing director with the turnaround firm Alvarez and Marsal, said repaying bondholders on an stepped-up pace would throw HealthSouth into default on other debts.
''We believe that acceleration would lead to a Chapter 11 (bankruptcy), which would be shameful after all we've been through,'' Sansone testified in a hearing.
Evidence showed HealthSouth has offered bondholders a premium of 1 percent - $25 million to $27 million - to waive the right to accelerated repayments, but creditors want as much as 11 percent, or as much as $297 million.
Under questioning from bondholder attorney William Brooks, Sansone acknowledged that HealthSouth was still months away from giving creditors and investors annual audited statements to verify its finances.
Instead, Sansone said, HealthSouth is giving bondholder advisors frequent financial updates. Sansone said those reports are better than statements filed with the Securities and Exchange Commission.
''I don't think that's true at all,'' replied Brooks, noting that the HealthSouth reports include disclaimers stating they may not be correct.
HealthSouth has $650 million in cash and is trying to get back into a growth mode, Sansone said. The company is ''substantially'' better off than it was when the accounting scandal broke a year ago, he said.
''It was in chaos,'' he said.
Officials have completed the field work on a forensic audit to determine HealthSouth's finances, Sansone said, and a special committee of directors has the information. The company hopes to release statements for 2003 by the end of the first quarter of 2005, he said.
The company has said it expects the forensic audit to show earnings were overstated by as much as $4.6 billion over a decade.
Seventeen former HealthSouth executives have pleaded guilty in the fraud, and Scrushy is free on $10 million bond awaiting an August trial. He has pleaded innocent.
HealthSouth calls itself the largest U.S. provider of rehabilitation therapy, diagnostic imaging and outpatient surgery center. The company has more than 46,000 employees and about 1,700 sites in all 50 states and abroad.
AP-NY-03-30-04 1639EST
