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HealthSouth Anything But Healthy

Apr 2, 2003 | Palm Beach Post Battered by allegations of massive fraud and in default on $1.25 billion in bonds and loans, HealthSouth Corp. might be forced to sell off assets in order to maintain operations, analysts say.

So far, HealthSouth's local centers it has 21 rehabilitation and surgical centers between Boca Raton and Vero Beach continue to operate despite the turmoil at the company's Birmingham, Ala., headquarters.

"There's been no effect on my facility," said an employee at a center in Boca Raton, who declined further comment and did not want to be identified.

Employees at other centers in Palm Beach County and the Treasure Coast referred calls to Birmingham or said they were prohibited from commenting.

On Monday, HealthSouth fired founder Richard Scrushy as chairman and chief executive officer. Scrushy, a part-time Palm Beach resident, owns a home at 1000 N. Lake Way that he bought two years ago for about $10 million.

The SEC filed suit this month alleging HealthSouth and Scrushy overstated earnings by at least $1.4 billion since 1999 to make it appear the company was meeting Wall Street expectations.

Three former HealthSouth executives have pleaded guilty to fraud and submitting fake financial statements, and Scrushy's attorneys have filed papers stating he is the target of a criminal probe.

On Friday, the company disclosed that a group of banks headed by JPMorgan Chase Bank declared the company in default on a $1.25 billion in bonds and loans, and prohibited HealthSouth from making payments totaling $367 million.

HealthSouth and the banks continued to negotiate terms Tuesday, but analysts said the default could push the company into bankruptcy.

"We're not certain at all what their cash position is," said Premila Peters, a credit analyst with KDP Investment Advisors in Montpelier, Vt.

The problem for the company will be to secure the cash it needs to continue to function, said analyst Phillip Seligman of Standard & Poor's in New York. He said there are indications that bankers might be unwilling to loan to HealthSouth.

"If it's unable to get any kind of funding, there's always the possibility of a break-up, but that's down the road," Seligman said.

Some doctors who own partnership shares in the surgical centers already are looking for investors to buy out HealthSouth, Seligman said.

"If they leave, there won't be much left," he said. "They're the most profitable part of the company."

Calls to the company seeking comment were not returned.

Meanwhile, unsure of its own worth because of bogus accounting, HealthSouth said Tuesday it can't file an annual report and postponed its shareholders' meeting, which had been scheduled for May 15.

A statement said HealthSouth would file its 2002 annual report "as soon as practicable."

HealthSouth describes itself as the largest U.S. provider of outpatient surgery, diagnostic imaging and rehabilitation services. It has some 50,000 employees and 1,700 facilities in all 50 states and abroad.

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