Jefferies Updating HealthSouth Model

In a report published by Jefferies, HealthSouth's HLS recently completed senior notes offering is leading to an updated model. Jefferies said that HLS completed a $120MM senior notes offering through a reopening of its 7.25% senior notes due 2018 and its 7.75% senior notes due 2022. “The company issued $60MM in aggregate principal amount of its 7.25% senior notes at a public offering price of 103.25% and an additional $60MM in aggregate principal amount of its 7.75% senior notes at a public offering price of 103.5%. Mgmt intends to use up to $45MM of the net proceeds to repay amounts outstanding under its revolving credit facility and the balance to redeem a portion of its 10.75% senior notes due 2016 on or before their initial June 15, 2011 call date. Our $28 PT is based on our 5-year DCF analysis, which incorporates a WACC of 10.4% and a terminal EBITDA multiple of 9.0x. This multiple is in-line with the company's historical trading range and appropriate, in our view, given the resilient nature of the company's business. Risks: unforeseen volume declines and pricing pressure.” HealthSouth closed yesterday at $24.26.