UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 16, 2006
(March 10, 2006)
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HealthSouth Corporation
(Exact Name of Registrant as Specified in Charter)
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Delaware 000-14940 63-0860407
(State or Other Jurisdicti (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
One HealthSouth Parkway
Birmingham, Alabama 35243
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (205) 967-7116
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry Into a Material Definitive Agreement.
On March 10, 2006, the Company announced that it had completed a series of
previously announced recapitalization transactions (the "Recapitalization
Transactions") and repaid substantially all of its existing indebtedness. The
Recapitalization Transactions included (i) entering into credit facilities that
provide for credit of up to $2.55 billion of senior secured financing, (ii)
entering into an interim loan agreement that provides the Company with $1.0
billion of senior unsecured financing, (iii) completing a $400 million offering
of convertible perpetual preferred stock; and (iv) completing cash tender offers
to purchase $2.03 billion of the Company's then outstanding senior notes and
$319 million of the Company's then outstanding senior subordinated notes and
consent solicitations with respect to proposed amendments to the indentures
governing each outstanding series of notes. In order to complete the
Recapitalization Transactions, the Company also entered into amendments, waivers
and consents to the Company's then existing senior secured credit facility, $200
million senior unsecured term loan agreement and $355 million senior
subordinated credit agreement to allow for the completion of the
Recapitalization Transactions.
The Company used a portion of the proceeds of the loans under the new senior
secured credit facilities, the proceeds of the interim loans and the $400
million of proceeds from its previously announced issuance and sale of 400,000
shares of 6.50% Series A Preferred Stock, completed on March 7, 2006, along with
cash on hand, to prepay substantially all of its existing indebtedness and to
pay fees and expenses related to such prepayment and the Recapitalization
Transactions. The remainder of the proceeds and availability under the senior
secured credit facilities are expected to be used for general corporate
purposes. The Company anticipates refinancing the $1 billion interim loans in
the second quarter or third quarter of 2006 through an issuance of debt
securities.
As part of the completion of the Recapitalization Transactions, the Company
announced on March 10, 2006 that it successfully completed its cash tender
offers and related consent solicitations to purchase $2.03 billion of
outstanding senior notes and $319 million of outstanding senior subordinated
notes. The tender offers expired at 5:00 p.m., New York City time, on March 9,
2006 (the "Expiration Time"). As of the Expiration Time, $1,996,842,000 in
aggregate principal amount of senior notes, representing 98.4 % of the senior
notes, and $288,964,000 in aggregate principal amount of senior subordinated
notes, representing 90.5 % of the senior subordinated notes, were validly
tendered for purchase and not withdrawn, and the Company accepted such notes for
purchase. The aggregate purchase price, including accrued and unpaid interest
and the consent payment, was $2,530,331,119.
A copy of the press release announcing the closing of the Recapitalization
Transactions is included as Exhibit 99.1 to this Form 8-K and is incorporated
herein by reference.
Credit Agreement
On March 10, 2006, the Company entered into the Credit Agreement (the "Credit
Agreement") with a consortium of financial institutions (collectively, the
"Lenders"), JPMorgan Chase Bank, N.A., as the administrative agent and the
collateral agent ("JPMorgan"), Citicorp North America, Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as co-syndication agents, and Deutsche Bank
Securities Inc., Goldman Sachs Credit Partners L.P. and Wachovia Bank, National
Association, as co-documentation agents.
The Credit Agreement provides for credit of up to $2.55 billion of senior
secured financing. The $2.55 billion available under the Credit Agreement
includes (1) a six-year $400 million revolving credit facility (the "Revolving
Loans"), with a revolving letter of credit subfacility and swingline loan
subfacility, (2) a six-year $100 million synthetic letter of credit facility and
(3) a seven-year $2.050 billion term loan facility (the "Term Loans"). The Term
Loans amortize in quarterly installments, commencing with the quarter ending on
September 30, 2006, equal to 0.25% of the original principal amount thereof,
with the balance payable upon the final maturity. The Term Loans and, prior to
the "Leverage Pricing Date" (as defined in the Credit Agreement), the Revolving
Loans bear interest (1) if the Company has received an initial corporate credit
rating after entering into the Credit Agreement of B+ or better by S&P and B1 or
better by Moody's (in each case with at least a stable outlook), at a rate of,
at the option of the Company, (a) LIBOR (adjusted for statutory reserve
requirements) plus 2.50% or (b) 1.50% plus the higher of (i) the federal funds
rate plus 0.50% and (ii) JPMorgan's prime rate, (2) if the Company has received
an initial corporate credit rating after entering into the Credit Agreement of B
or better by S&P and B2 or better by Moody's (in each case with at least a
stable outlook), at a rate of, at the option of the Company, (a) LIBOR (adjusted
for statutory reserve requirements) plus 2.75% or (b) 1.75% plus the higher of
(i) the federal funds rate plus 0.50% and (ii) JPMorgan's prime rate or (3) if
the Company has not received an initial corporate credit rating from either or
both of S&P and Moody's after entering into the Credit Agreement, or has not
received an initial corporate credit rating of at least B by S&P and B2 by
Moody's (in each case with at least a stable outlook), at a rate of, at the
option of the Company, (a) LIBOR (adjusted for statutory reserve requirements)
plus 3.25% or (b) 2.25% plus the higher of (i) the federal funds rate plus 0.50%
and (ii) JPMorgan's prime rate. After the Leverage Pricing Date, the revolving
loans will bear interest at a rate of, at the Company's option, (1) LIBOR
(adjusted for statutory reserve requirements) or (2) the higher of (a) the
federal funds rate plus 0.50% and (b) JPMorgan's prime rate, in each case, plus
an applicable margin that varies depending upon the Company's leverage ratio and
its initial corporate credit rating after entering into the Credit Agreement.
As described above, a portion of the proceeds of the loans under the Credit
Agreement were used to refinance a portion of the Company's existing
indebtedness and to pay fees and expenses related to such refinancing. The
remainder of the proceeds will be used for general corporate purposes. The
letters of credit issued under the revolving letter of credit subfacility and
the synthetic letter of credit facility will be used in the ordinary course of
business to secure workers' compensation and other insurance coverages and for
general corporate purposes.
The Credit Agreement contains customary representations, warranties and
affirmative and negative covenants. The Credit Agreement also includes customary
events of default, including, without limitation, payment defaults,
cross-defaults to other material indebtedness and bankruptcy-related defaults.
If any "event of default" (as defined in the Credit Agreement) occurs and is
continuing, JPMorgan may, and at the request of the required Lenders will,
terminate the commitments and declare all of the amounts owed under the Credit
Agreement to be immediately due and payable.
Pursuant to a Collateral and Guarantee Agreement (the "Collateral and Guarantee
Agreement"), dated as of March 10, 2006, between the Company, the subsidiaries
of the Company identified therein (collectively, the "Subsidiary Guarantors")
and JPMorgan, the Company's obligations under the Credit Agreement are (a)
secured by substantially all of the assets of the Company and the Subsidiary
Guarantors and (b) guaranteed by the Subsidiary Guarantors.
The foregoing descriptions of the Credit Agreement and the Collateral and
Guarantee Agreement are qualified in their entirety by reference to such
agreements, copies of which are attached hereto as Exhibits 10.1 and 10.2,
respectively, and are incorporated herein by reference.
Interim Loan Agreement
On March 10, 2006, the Company and the Subsidiary Guarantors also entered into
the Interim Loan Agreement (the "Interim Loan Agreement") with a consortium of
financial institutions (collectively, the "Interim Lenders"), Merrill Lynch
Capital Corporation, as administrative agent ("Merrill"), Citicorp North
America, Inc. and JPMorgan Chase Bank, N.A., as co-syndication agents, and
Deutsche Bank AG Cayman Islands Branch, Goldman Sachs Credit Partners L.P. and
Wachovia Bank, National Association, as co-documentation agents. The Interim
Loan Agreement provides the Company with $1 billion of senior unsecured interim
financing. The loans under the Interim Loan Agreement will mature on March 10,
2007 (the "Initial Maturity Date"). Any Interim Lender who has not been repaid
in full on or prior to the Initial Maturity Date will have the option to receive
exchange notes (the "Exchange Notes") issued under a certain indenture (the
"Exchange Note Indenture") in exchange for the outstanding loan. If any such
Lender does not exchange its loans for Exchange Notes on the Initial Maturity
Date, the maturity date of the loans will automatically extend to March 10,
2014, prior to which such Lender may exchange its loans for Exchange Notes at
any time. The proceeds of the loans under the Interim Loan Agreement were used
to refinance a portion of the Company's existing indebtedness and to pay fees
and expenses related to such refinancing. The Company's obligations under the
Interim Loan Agreement are guaranteed by the Subsidiary Guarantors.
Prior to the Initial Maturity Date, subject to certain agreed upon minimum and
maximum rates, the loans will bear interest at a rate per annum equal to: (1)
LIBOR, adjusted for statutory reserve requirements ("Adjusted LIBOR") plus 4.50%
for the period following the closing date on March 10, 2006 and ending prior to
September 10, 2006 and (2) Adjusted LIBOR plus 5.50% as of September 10, 2006
and an additional 0.50% at the end of each three-month period commencing on
September 10, 2006 until but excluding the Initial Maturity Date. After the
Initial Maturity Date, subject to certain agreed upon minimum and maximum rates,
the loans that have not been repaid or exchanged for Exchange Notes will bear
interest at the rate borne by the loans on the day immediately preceding the
Initial Maturity Date plus 0.50% during the three-month period commencing on the
Initial Maturity Date and an additional 0.50% at the beginning of each
subsequent three-month period.
The Interim Loan Agreement contains representations and warranties, affirmative
and negative covenants and default and acceleration provisions that are
substantially similar to the provisions contained in the Credit Agreement.
However, following the Initial Maturity Date, most of the affirmative covenants
will cease to apply to the Company and the Subsidiary Guarantors and the
negative covenants and the default and acceleration provisions will be replaced
by those contained in the Exchange Note Indenture (such provisions are customary
for high yield transactions).
A copy of the Interim Loan Agreement, together with the Exchange Note Indenture,
is filed as Exhibit 10.3 to this report and is incorporated herein by reference.
The description above of the Interim Loan Agreement and the Exchange Note
Indenture is qualified in its entirety by the complete text of the Interim Loan
Agreement and the Exchange Note Indenture, as applicable.
As described above, a portion of the Company's proceeds from the series of
Recapitalization Transactions were used to prepay substantially all of the
Company's then existing indebtedness. The Company's prepayment of indebtedness
included loans under the following agreements: (i) Senior Subordinated Credit
Agreement, dated as of January 16, 2004, by and among the Company, the lenders
party thereto, and Credit Suisse First Boston, as administrative agent and
syndication agent (the "Senior Subordinated Credit Agreement"); (ii) Amended and
Restated Credit Agreement, dated as of March 21, 2005, by and among the Company,
the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent
and collateral agent, Wachovia Bank, National Association, as syndication agent,
and Deutsche Bank Trust Company Americas, as documentation agent (the "Amended
and Restated Credit Agreement"); and (iii) Term Loan Agreement, dated as of June
15, 2005, by and among the Company, the lenders party thereto, JPMorgan Chase
Bank, N.A., as administrative agent, Citicorp North America, Inc., as
syndication agent, and J.P. Morgan Securities Inc. and Citigroup Global Markets
Inc. as co-lead arrangers and joint bookrunners (the "Term Loan Agreement").
Upon the closing of the Recapitalization Transactions on March 10, 2006, the
Company prepaid and terminated the Senior Subordinated Credit Agreement, the
Amended and Restated Credit Agreement, and the Term Loan Agreement. Descriptions
of each of the terminated agreements follow.
Senior Subordinated Credit Agreement
On January 16, 2004, the Company entered into the $355 million Senior
Subordinated Credit Agreement, which had an interest rate of 10.375% per annum,
payable quarterly, with a 7-year maturity, callable after the third year with a
premium.
On February 15, 2006, the Company entered into a consent and waiver (the
"Consent") to the Senior Subordinated Credit Agreement. Pursuant to the terms of
the Consent, the "required lenders" (as defined in the Senior Subordinated
Credit Agreement) consented to the prepayment of all outstanding loans in full
(together with all accrued and unpaid interest) on or prior to March 20, 2006
and waived certain provisions of the Senior Subordinated Credit Agreement to the
extent such provisions prohibited such prepayment. Pursuant to the Consent,
along with the payment-in-full of all principal amount of loans and accrued and
unpaid interest thereon owed under the Senior Subordinated Credit Agreement, the
Company paid a prepayment premium equal to 15.00% of the principal amount of the
loans.
The foregoing description of the Senior Subordinated Credit Agreement is
qualified in its entirety by the complete text of the Senior Subordinated Credit
Agreement, which was attached as Exhibit 10.1 to the Company's Current Report on
Form 8-K dated January 20, 2004, and is incorporated herein by reference.
Amended and Restated Credit Agreement
The Amended and Restated Credit Agreement amended and restated the Credit
Agreement dated as of June 14, 2002, as amended on August 20, 2002 (the
"Original Credit Agreement"), among the Company, the lenders from time to time
party thereto, JPMorgan Chase, N.A., as administrative agent, Wachovia Bank,
National Association, as syndication agent, UBS Warburg LLC, ScotiaBanc, Inc.,
and Deutsche Bank AG, New York Branch, as co-documentation agents, and Bank of
America, N.A., as senior managing agent.
Pursuant to the Amended and Restated Credit Agreement, the lenders converted
$315 million in aggregate principal amount of the loans outstanding under the
Original Credit Agreement into a senior secured term facility which would have
matured on June 14, 2007 (the "Converted Term Loans"). Such maturity date for
the Converted Term Loans, however, would have automatically been extended to
March 21, 2010 in the event that (1) such extension became permitted under the
Company's Senior Subordinated Credit Agreement or (2) the Senior Subordinated
Credit Agreement ceased to be in effect. The Converted Term Loans amortized in
quarterly installments, commencing with the quarter ended on September 30, 2005,
equal to 0.25% of the original principal amount thereof, with the balance
payable upon the final maturity. Until the Company had obtained ratings from
Moody's and S&P, the Converted Term Loans carried interest, at the Company's
option, at a rate of (1) LIBOR (adjusted for statutory reserve requirements)
plus 2.50% or (2) 1.50% plus the higher of (x) the Federal Funds Rate plus 0.50%
and (y) JPMorgan's prime rate. After the Company had obtained such ratings, the
Converted Term Loans carried interest, at the Company's option, (1) at a rate of
LIBOR (adjusted for statutory reserve requirements) plus a spread ranging from
2.00% to 2.50%, depending on the Company's ratings with such institutions or (2)
at a rate of a spread ranging from 1.00% to 1.50%, depending on the Company's
ratings with such institutions, plus the higher of (x) the Federal Funds Rate
plus 0.50% and (y) JPMorgan's prime rate.
In addition, the Amended and Restated Credit Agreement made available to the
Company a senior secured revolving credit facility in an aggregate principal
amount of $250 million (the "Revolving Facility") and a senior secured revolving
letter of credit facility in an aggregate principal amount of $150 million (the
"LC Facility"). The commitments under the Revolving Facility and the LC Facility
would have expired, and all borrowings under such facilities would have matured,
on March 21, 2010.
Pursuant to the Collateral and Guarantee Agreement (the "2005 Collateral and
Guarantee Agreement"), dated as of March 21, 2005, between the Company and
JPMorgan, the Company's obligations under the Amended and Restated Credit
Agreement were secured (1) by substantially all of the assets of the Company and
(2) from and after the date on which the Restrictive Indentures (as defined in
the Amended and Restated Credit Agreement) and the Senior Subordinated Credit
Agreement permitted the obligations (or an amount thereof) to be guaranteed by
or secured by the assets of certain existing and subsequently acquired or
organized material subsidiaries of the Company by substantially all of the
assets of such subsidiaries. The 2005 Collateral and Guarantee Agreement, along
with the guaranty obligation made and the security interests granted therein
terminated automatically upon the termination of the Amended and Restated Credit
Agreement.
On February 22, 2006, the Company entered into an amendment and waiver (the
"Waiver") to the Amended and Restated Credit Agreement. Pursuant to the terms of
the Waiver, the "required lenders" (as defined in the Amended and Restated
Credit Agreement) waived, in the event that all the transactions contemplated by
the Recapitalization Transactions did not occur substantially simultaneously,
certain provisions of the Amended and Restated Credit Agreement, to the extent
such waiver was required to permit the Company to apply 100% of the net proceeds
of the issuance of the convertible preferred stock to the prepayment or
repayment of other existing indebtedness. In connection with the Waiver, the
Company paid to each lender executing the Waiver on or prior to 5:00 p.m.,
February 22, 2006, a waiver fee equal to 0.05% of the principal amount of such
lender's loans.
The foregoing description of the Amended and Restated Credit Agreement and the
2005 Collateral and Guarantee Agreement is qualified in its entirety by the
complete text of the agreements, which were attached as Exhibits 10.1 and 10.2
to the Company's Current Report on Form 8-K dated March 22, 2005, respectively,
and are incorporated herein by reference.
Term Loan Agreement
Pursuant to the Term Loan Agreement, the Company obtained a senior unsecured
term facility consisting of term loans (the "2005 Term Loans") in an aggregate
principal amount of $200 million. The 2005 Term Loans initially carried interest
at a rate of LIBO (adjusted for statutory reserve requirements) plus 5.0% per
year (the "Initial Rate") and thereafter, at the Company's option, at a rate of
(1) the Initial Rate or (2) 4.0% per year plus the higher of (x) JPMorgan's
prime rate and (y) the Federal Funds Rate plus 0.50%. The 2005 Term Loans would
have matured in full on June 15, 2010.
On February 15, 2006, the Company entered into an amendment and waiver (the
"Amendment") to the Term Loan Agreement. Pursuant to the terms of the Amendment,
the "required lenders" (as defined in the Term Loan Agreement) amended certain
provisions of the Term Loan Agreement to the extent such provisions prohibited a
prepayment of the loans thereunder prior to June 15, 2006. In connection with
the prepayment-in-full of the principal amount of loans and accrued and unpaid
interest thereon owed under the Term Loan Agreement, the Company paid a
prepayment fee equal to 2.00% of the aggregate principal amount of the
prepayment.
The foregoing description of the Term Loan Agreement is qualified in its
entirety by the complete text of the agreement, which is attached as Exhibits 10
to the Company's Current Report on Form 8-K dated June 15, 2005, and is
incorporated herein by reference.
Item 1.02. Termination of a Material Definitive Agreement.
The information contained in Item 1.01 concerning the Company's termination of
certain material definitive agreements is hereby incorporated herein by
reference.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information contained in Item 1.01 concerning the Company's direct financial
obligations is hereby incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
See Exhibit Index.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HEALTHSOUTH CORPORATION
By: /s/ JOHN WORKMAN
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Name: John Workman
Title: Executive Vice President and
Chief Financial Officer
Date: March 16, 2006
EXHIBIT INDEX
Exhibit No. Description
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10.1 Credit Agreement, dated March 10, 2006, by and among
the Company, the lenders party thereto, JP Morgan
Chase Bank, N.A., as the administrative agent and the
collateral agent, Citicorp North America, Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
as co-syndication agents; and Deutsche Bank
Securities Inc., Goldman Sachs Credit Partners L.P.
and Wachovia Bank, National Association, as
co-documentation agents.
10.2 Collateral and Guarantee Agreement, dated as of March
10, 2006, by and among the Company, certain of the
Company's subsidiaries and JPMorgan Chase Bank, N.A.,
as collateral agent.
10.3 Interim Loan Agreement, dated March 10, 2006, by and
among the Company and certain of the Company's
subsidiaries, the lenders party thereto, Merrill
Lynch Capital Corporation, as administrative agent,
Citicorp North America, Inc. and JP Morgan Chase
Bank, N.A., as co-syndication agents; and Deutsche
Bank AG Cayman Islands Branch, Goldman Sachs Credit
Partners L.P. and Wachovia Bank, National
Association, as co-documentation agents.
99.1 Press release dated March 10, 2006.