Encompass Health Corp (EHC)

[BullNBear52]

UPDATE - HealthSouth creditors: Talks to cure default stall
Tuesday May 18, 6:17 pm ET


(Adds details, comment from HealthSouth representative)
NEW YORK, May 18 (Reuters) - Negotiations between HealthSouth Corp. (Other OTC:HLSH.PK - News) and its creditors to remedy a default of its bonds have stalled, the Unofficial Committee of Holders of HealthSouth's senior notes said on Tuesday.

The group said it wants HealthSouth, which defaulted on its bonds after an accounting scandal left the company unable to file audited financial results, to increase its payment to creditors in a consent solicitation.

"HealthSouth continues to want to resolve this on a fair and consensual basis in order to move forward with its financial restructuring," said Andy Brimmer, a spokesman for HealthSouth.

HealthSouth, which is still paying interest on the bonds, is offering to pay bondholders $13.75 per $1,000 in principal amount to bondholders that grant a waiver to the default. The group is urging the bondholders not to consent to the company's proposal.

"HealthSouth is determined to avoid paying fair compensation to bondholders by championing consents from a small minority that has either been coerced or which gave their consents to accommodate such consenting bondholders' other objectives," said Brad Scheler, counsel to the Unofficial Committee of Bondholders and an attorney at Fried, Frank, Harris, Shriver & Jacobson.

HealthSouth said last week it had received waivers from holders of its 8.5 percent senior notes due 2008 and 10.75 percent senior subordinated notes due 2008. The company had extended its consent solicitation to May 20.

"The company continues to be encouraged by the significant and positive response it has received so far under its consent solicitations, as demonstrated by the recent success of the 8.5 percent and 10.75 percent consents," Brimmer said.

The company believes this shows the market is validating its consent fees as commercially reasonable," he added.

Scheler said in a statement that holders of five of HealthSouth's six senior note issuances, which represent $2 billion of HealthSouth's $2.3 billion of senior notes have not consented. The company's total liabilities exceed $3 billion.

Last year, the Securities and Exchange Commission (News - Websites) accused HealthSouth of accounting fraud by inflating the company's financial results by billions of dollars over several years.

Several former accounting and finance executives have pleaded guilty to fraud charges. Founder and former chief executive Richard Scrushy denies the allegations.