Amid Uncertainty, Tenet Weighs Options

Moody’s analysis shows that plenty of liquidity and flexibility from a debt covenant perspective give Tenet time to make operating improvements or change its strategic direction.

Despite high leverage, disgruntled shareholders, and mounting uncertainty, Tenet Healthcare Corp. has the time and flexibility to adjust before refinancing is required in 2020, an analysis from Moody’s Investors Service says.

“We had expected Tenet to de-lever primarily through organic growth and the deployment of capital to acquire EBITDA-generating ambulatory surgery centers. But recent developments create considerable uncertainty around the company's strategy,” Moody’s said.

Those recent developments include the Oct. 23 accelerated departure of long-serving CEO Trevor Fetter who had planned to retire early next year. He leaves with a severance package worth nearly $23 million.

Dallas-based Tenet is the nation’s third-largest for-profit hospital company, based on the number of hospitals it operates. It is also one of the most highly leveraged, and its margins are significantly lower than other investor-owned, publicly traded hospital companies, Moody’s says.

The company has outstanding debts of $17.2 billion, and a debt/EBITDA ratio of 7.0X. Moody’s gives the company a B2 credit rating with a negative outlook.  

Fetter’s abrupt departure and a board of trustees shake up come amid growing shareholder unrest, led by Glenview Capital, an activist investor that owns 18% of Tenet’s stock.

Tenet has also announced a series of hospital divestitures by year’s end.

Moody’s says Tenet is well-positioned in the near term with favorable debt terms and good liquidity providing flexibility.

“The company has no significant near-term maturities and good liquidity with minimal covenant restrictions,” Moody’s says. “The next large maturity that would require refinancing is in October 2020. As a result, Tenet has significant flexibility and time to make operating improvements or change its strategic direction.”

While still grappling with a challenging hospital environment, Tenet’s earnings are expected to improve with the company’s investment in ambulatory services businesses.

With the changes in leadership at Tenet, Moody’s says “all options are on the table,” including the sale of its ambulatory services centers, and its Conifer revenue-cycle management subsidiary. If Tenet sells Conifer or ASCs, the company is not obligated to use those proceeds to pay down its debts, although Moody's says that would be a “significant credit negative.”

However, if Tenet sells ASCs to reduce debt, Moody’s says the company would also “lose scale and diversity and risk considerable operating disruption because these businesses are closely aligned with its hospitals.”