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Tenet Healthcare Offers Senior Unsecured Notes Worth $2.5B

Zacks Equity Research
·4 mins read

Tenet Healthcare Corporation THC recently announced the pricing of $2.5 billion aggregate principal amount of senior notes.

The notes carry an interest rate of 6.125% p.a. and are scheduled to mature on Oct 1, 2028. Subject to standard closing and market conditions, the notes offering is likely to be completed on Sep 16, 2020.

At first, Tenet Healthcare plans to utilize the net proceeds for payments of fees and expenses. Following this, the remaining net proceeds coupled with cash on hand will be put to use for redeeming the entire 8.125% Senior Notes due 2022.

In fact, the company has been showing prudence by issuing senior notes amid a low interest rate environment to procure funds and enhance financial flexibility without affecting liquidity. Case in point in June, the company had priced $600 million 4.625% senior notes due Jun 15, 2028 and intends to utilize the proceeds for general corporate purposes after paying fees and expenses.

Further, two months prior to the move in June, the company had priced $700 million 7.500% senior notes due Apr 1, 2025 and intends to deploy the proceeds for repayment of borrowings and general corporate purposes after paying fees and expenses.

By capitalizing on the low interest rate environment triggered by the COVID-19 pandemic, the company is also attempting to reduce its interest burden, thus facilitating margin expansion. Notably, interest expenses have remained flat in the first half of 2020 compared with the prior-year period.

Shares of this Zacks Rank #3 (Hold) healthcare provider have gained 39.9% in a year compared with the industry’s growth of 5.9%.

It’s worth mentioning that Tenet Healthcare has maintained sufficient cash reserves for preserving the company’s liquidity amid the pandemic-induced financial uncertainties. As of Jun 30, 2020, the company’s cash and cash equivalents increased more than 13 times to $3.5 billion from 2019 end level.

Moreover, strong cash balance implies that cash reserves available are sufficient for servicing debt obligations, which however, increased 7.7% from 2019 end. Nevertheless, the company’s operational efficiencies should enable it to service debt uninterruptedly, which should maintain the stock’s creditworthiness.

The company’s ability to generate free cash flows also bode well, which can be used for undertaking not only buyouts and joint ventures but also for the purpose of debt repayments.

Furthermore, the company’s leverage has been improving. This is further substantiated by the company’s total debt to total capital of 96.2% at the second-quarter end, which improved 60 basis points (bps) from 2019 end.

Its times interest earned ratio also expanded 10 bps at the second quarter end from 2019 end. This implies that the company will be able to meet current obligations in the near future without any difficulties.

Stocks to Consider

Some better-ranked stocks in the medical space include Select Medical Holdings Corporation SEM, Emergent BioSolutions Inc. EBS and The Ensign Group, Inc. ENSG, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Select Medical, Emergent BioSolutions and Ensign Group have a trailing four-quarter earnings surprise of 212.61%, 127.41% and 17.08%, on average, respectively.

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Tenet Healthcare Corporation (THC) : Free Stock Analysis Report
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