HealthSouth Corp.'s announcement that it would make up for $117 million in missed interest payments to its bondholders has encouraged one long-standing supporter of the credit, but a buy-sider is unmoved in his skepticism. The company's 6.875% notes of '05 had climbed some eight points as of Thursday morning, and were bid at 88, or a yield of 13.2%.
Elie Radinsky, analyst at Jefferies & Co. says he will stick to his July 8 yield target of 9.25%. He notes that while the company has still released no financial statements since its accounting scandal in March, and remains in default on $344 million in outstanding convertible bonds, the decision to make interest payments indicates that management has confidence in its business model.
However, one investor responsible for over $500 million in high-yield assets says he is not sure if he would get involved in the name at almost any price. "The people who were involved in running that company are every bit as bad as anything you've seen at Enron andWorldCom ," he argues. He sees a substantial risk that the company will be charged with Medicare fraud, and be slapped with a fine of several hundred million dollars by the Securities and Exchange Commission.
Another possible wrinkle, according to one credit analyst, is that bondholders will demand further concessions from the company. However, he believes protestations they have made are mere saber rattling, and that they will not accelerate the notes and push the company into bankruptcy. "If you're a bondholder and you bought in at 50, and today you're at 88 plus accrued interest, it's a home run for you. Why would you file the company? There's the potential the bonds drop in value before they go up. You're playing with fire."