Tenet Healthcare Corporation (THC) recently decided to issue $850 million 4.5% senior secured notes with maturity scheduled in 2021.
Subsequently, credit rating agency Standard & Poor’s Rating Services allotted an issue-level rating at “B+” and a recovery rating of “2”. Additionally Fitch Ratings also assigned Tenet’s senior secured notes due 2021 a “BB/RR1” rating with a stable outlook.
The proceeds from the issuance will be deployed to finance the purchase of Tenet’s 10% senior secured notes worth $174 million due 2018. The remaining proceeds will be utilized to buyback outstanding senior notes of the company privately or publicly as well as to engage in deleveraging activities.
As of Sep 30, 2012, the debt-to-capital ratio for the company was 0.79x which represented an increase of 4 percentage points from 0.75x at 2011 end. With the issuance of the $850 million debt, the debt-to-capital ratio is expected to increase further 3 percentage points to 0.82x.
The new issuance would require Tenet to pay an annual interest of $38.3 million. Nevertheless, the company’s solid operational performance generates enough funds to service the debt uninterruptedly. Its interest expense in the third quarter shot up 74.6% year over year.
Last December, another healthcare service provider HCA Holdings Inc. (HCA) also decided to offer $1.0 billion aggregate principal amount of senior notes. The proceeds from the issuance were intended to be distributed to its shareholders and optionholders.
Tenet is expected to release its fourth-quarter and full year 2012 earnings results on Feb 25. The Zacks Consensus Estimates for the fourth quarter is currently pegged at 70 cents translating into year-over-year improvement of 74.3%. Earnings for full year 2012 are expected to be $1.96 per share down 9.2% year over year.
Tenet carries a Zacks Rank #3 (Hold). Other healthcare service companies like Acadia Healthcare Company, Inc. (ACHC) and Mednax, Inc. (MD) carry favorable Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy) respectively and are worth noting.
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