Tenet Healthcare's Senior Secured Notes Get Rating Actions
Zacks Investment Research | Aug 12, 2019 09:45PM ET
Tenet Healthcare Corporation's (NYSE:THC) new senior secured first lien notes due 2026 and 2027 have received a Ba3 rating from Moody’s Investors Service. However, there is no alteration in the rating of the company’s current senior secured first and second lien debt, unsecured notes or the Speculative Grade Liquidity Rating. The outlook is stable.
Funds raised from the $4.2 billion of new senior secured first lien notes along with cash and an asset-based lending (ABL) will be used to pay Tenet Healthcare’s current senior secured first lien notes maturing in 2020 and 2021 and fees and costs related to the fund transaction.
These issued first lien notes will be protected by a first priority pledge of the capital stock of the company’s domestic units and gain traction from the domestic hospital units’ guarantees. However, the notes do not have a security of subsidiary assets, thereby causing a weak collateral package.
Rationale Behind Ratings
Tenet Healthcare's B2 Corporate Family Rating is mainly restricted by its high financial leverage and certain industry headwinds, such as weak volume and cost inflation.
Nevertheless, the rating reflects the company’s impressive scale and diversity. Tenet Healthcare is well-diversified by state and payor. Its ambulatory surgery and revenue cycle management businesses boost its diversity and gain from the longer-term trends that favor outpatient services. The credit rating agency’s stable outlook is reflective of Tenet Healthcare’s ability to lower its debt/EBITDA to around six times by 2020 end.
Factors That Can Influence the Ratings
The ratings can be downgraded if Tenet Healthcare faces operational challenges if its liquidity suffers or if it doesn’t succeed to achieve its cost savings. It can also face a downgrade if Conifer is divested without debt repayment, its debt/EBITDA is sustained above 6.5 times or failing to pursue share buybacks or returning shareholder’s money.
Notably, its ratings could see an upgrade if the company’s recent cost and operating initiatives can yield results, if it realizes better cash flow and interest coverage metrics and if its debt/EBITDA is sustained below 5.5 times.
Shares of this Zacks Rank #3 (Hold) company have lost 38% in a year’s time, wider than its Original post
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