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Tenet Prices Senior Notes

Zacks Equity Research

The healthcare services company, Tenet Healthcare Corporation (THC), announced a private offering of senior notes to qualified institutional buyers. The offering comprises $2.8 billion aggregate principal amount of senior unsecured notes and $1.8 billion aggregate principal amount of senior secured notes.

Tenet Healthcare intends to use the proceeds from the issuance to partly finance the company’s acquisition of Vanguard Health Systems Inc. (VHS) that is expected to culminate by the end of this year. On Jun 24, 2013, Tenet announced this acquisition stating that it will acquire this small competitor firm in an all-cash deal of $4.3 billion.

With a total debt of $5.6 billion at the end of the second quarter of 2013, Tenet Healthcare’s debt portfolio has increased considerably (up 19% year over year). As of Jun 30, 2013, the debt-to-capital ratio for the company was 0.86x, representing a deterioration of 4 basis points (bps) and 6 bps from 0.82x at year-end 2012 and 0.80x at Jun 30, 2012, respectively. The current issuance of $4.6 billion is expected to further deteriorate the debt-to-capital ratio, going forward.

Tenet Healthcare’s interest expenses decreased 3.9% year over year on notes payable in the second quarter of 2013. Nevertheless, the new notes issued are expected to increase the interest expense of the company, going forward.  However, we believe that the company’s solid operational performance generates enough funds to service the debt uninterruptedly.

Previously in May 2013, Tenet Healthcare offered to sell 4.375% senior secured notes worth $1.05 billion due 2021, through private placement.

Tenet Healthcare carries a Zacks Rank #3 (Hold). Other healthcare companies with a favorable Zacks Rank that are worth considering are HCA Holdings Inc. (HCA) and Acadia Healthcare Companies Inc. (ACHC). Both the stocks carry a Zacks Rank #2 (Buy).

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Read the Full Research Report on HCA

Read the Full Research Report on VHS

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