Recently, Moody’s Investor Service, the credit rating agency of Moody’s Corporation (MCO) allotted debt ratings to Tenet Healthcare Inc.’s (THC) latest senior note issuance. The $1.8 billion senior secured notes were assigned a “Ba3” rating while the $2.8 billion senior unsecured notes were provided with a “B3” rating.
Moody’s had put Tenet’s ratings on review after the latter entered into a definitive agreement to acquire Vanguard Health Systems Inc. (VHS) in Jun 2013. The present rating action is a reflection of this.
Additionally, Moody’s affirmed the existing B1 Corporate Family Rating and B1–PD Probability of Default Rating . All the abovementioned ratings carry a stable outlook. The B1 Corporate Family Rating affirmation reflects an expected improvement in Tenet’s credit metrics due to the synergies and benefits from the Affordable Care Act (:ACA) implementation. The thorough utilization of debts for acquisitions and excess capital deployment are also reflected in the ratings. The stable outlook came on the back of an expected improvement in the pro forma credit metrics of Tenet.
At the same time Moody’s downgraded Tenet’s Speculative Grade Liquidity Rating from SGL–2 to SGL–3. This downgrade came on the back of expected cash requirement at the time of maturity of the $474 million of senior unsecured notes in the first quarter of 2015. The downgrade also reflects the sudden maturity of Tenet’s credit revolver in the latter half of 2014 in case a part of these notes are not refinanced or repaid in a timely manner. Moreover, Moody’s also warns that considerable capital expenditures might pressurize Tenet’s liquidity in the near term.
A near term upgrade in the ratings is unlikely as Moody’s expects credit metrics to improve throughout 2014. However, lower leverage levels (below 4x) can lead to a potential upgrade. A failure to improve operating performance, trouble in integrating Vanguard in its operations or higher leverage levels could invite a downgrade.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining creditworthiness in the market. The ratings affirmed by Moody’s are expected to help the company to help it write more business going forward. On the contrary, the downgrade in Tenet’s Speculative Grade Liquidity Rating is expected to mar investor confidence on the stock to some extent. The debt ratings assigned is expected to help Tenet procure debt smoothly going forward.
Tenet Healthcare carries a Zacks Rank #3 (Hold). Another healthcare company with a favorable Zacks Rank #2 (Buy) that is worth considering is Acadia Healthcare Company Inc. (ACHC).
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