BUSINESS

HealthSouth starts paying off debts

The scandal-ridden company says the payment was made possible by improved operations and asset sales.

By Katherine Vogt, AMNews staff. Sept. 1, 2003.

HealthSouth has paid all of its $117 million in past due interest to lenders and noteholders, signaling hope that the debt-laden outpatient services giant may be able to avoid a bankruptcy filing.

The Birmingham, Ala.-based company, which is $3.3 billion in debt, announced on Aug. 12 that it was able to make the payments because of improved liquidity from operations and the sales of assets. The interest had been accruing since last spring, when a massive accounting scandal involving top executives was revealed.

"With these interest payments, we have fulfilled not only a legal but also a moral obligation to our bank lenders and noteholders," said Joel C. Gordon, HealthSouth's interim chair, in a written statement. "We appreciate the time our bank lenders and noteholders have given us to address our financial situation."

Gordon said he believes HealthSouth's financial credibility would be "further restored" by news of the interest payment as well as an announcement that the company has started discussions on an exchange offer with holders of convertible subordinated debentures. HealthSouth owes about $344 million in principal to those holders.

The company has been reeling in the wake of the accounting scandal, announced in March. Investigators have alleged that HealthSouth inflated earnings by as much as $2.4 billion. At least 14 former company officials, including five former chief financial officers, have agreed to plead guilty in the case. Founder and former CEO Richard Scrushy was fired. He has not been charged with a crime but is under investigation for civil insider trading.

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