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Tenet Healthcare (THC) Announces Partial Redemption of Notes

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  • THC
  • UHS
  • ACHC

Tenet Healthcare Corporation THC recently announced the redemption of $1.100 billion of the $1.870 billion aggregate principal amount of its outstanding senior secured notes. The notes carry an interest rate of 4.625% and will mature on Jul 15, 2024.

The hospital company will use $1.100 billion received from the recent divestiture of five hospitals and related operations in the Miami-Dade and Southern Broward counties to pay for the retirement of debt.

Net proceeds from these notes will be used in reducing its future annual cash interest payments by around $50 million.

The notes will be redeemed on Sep 10, 2021 at a redemption price equal to 101.156% of the principal amount of the notes being redeemed along with accrued and unpaid interest.

Tenet Healthcare takes measures to enhance its financial flexibility without affecting its liquidity position. It is a highly levered company and regularly refinances debt through tender offers and exchange offers.

By capitalizing on the low interest rate environment triggered by the COVID-19 pandemic, the company is attempting to lower its interest burden, thereby aiding margin expansion.

In May 2021, it agreed to issue and sell $1.4 billion of senior notes, carrying an interest rate of 4.25%. These eight-year notes are due Jun 1, 2029.

Total debt of the company accounts for 93.8% of its capital, higher than the industry’s average of 90%. Its times interest earned now is 1.9X, much lower than its industry’s average of 4.2X. The company exited 2020 with cash and cash equivalents of $2.2 billion, much lower than $15 billion of long-term debt. Although it has no borrowings outstanding under its line of credit, its lack of financial flexibility is a woe.

Therefore, the company is constantly taking up initiatives to add to its liquidity. It exited the second quarter with its leverage ratio being 4.17 times its adjusted EBITDA. The company even refinanced notes worth $1.4 billion in the last reported quarter, which will result in $13 million of future annual cash interest savings.

Zacks Rank and Price Performance

Over the past year, this hospital company’s stock has rallied 140.7% compared with its industry’s growth of 72%. It has a Zacks Rank #3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Stocks to Consider

Some better-ranked stocks in the same space are Acadia Healthcare Company, Inc. ACHC, HCA Healthcare, Inc. HCA and Universal Health Services, Inc. UHS, each holding a Zacks Rank #2 (Buy) at present.

Acadia Healthcare came up with a trailing four-quarter surprise of 26.1%, on average.

HCA Healthcare’s earnings managed to beat estimates in three of the trailing four quarters (missing the mark in the remaining one), the average beat being 11.7%.

Universal Health’s bottom line managed to come up with a four-quarter surprise of 29%, on average.


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