Tenet Hikes Notes Issue

On Friday, Tenet Healthcare Corporation (THC - Analyst Report) announced an increase in the issue size of its senior secured notes, due 2018, to $900 million from $750 million, as announced earlier the same day. The notes will be issued through private placement and will carry an annual interest rate of 6.25%.

The proceeds of the issue is likely to be used for part repayment of the principal, premium and interest on the 9% senior secured notes due in 2015, which had an outstanding principal of $714 million, as on September 30, 2011. Any surplus amount will be used to repurchase other outstanding senior notes or for other corporate purposes.

The new notes will be ranked equal to Tenet’s existing 9% senior secured notes, 10% senior secured notes and 8.875% senior secured notes and will be guaranteed and secured by Tenet’s capital and ownership stock of the company’s certain subsidiaries.

Prior to the upsizing, Moody’s Investor Service assigned a debt rating of “B1” to the notes, which is below investment grade. Meanwhile Standard & Poor’s assigned a “BB-” issue-level rating, with a recovery rating of “1”, which indicates a high recovery rate for lenders in case of a default.

As the issue has not been registered by Tenet under the Securities Act of 1933 or any state securities laws, the notes are being issued only to qualified institutional buyers and people living outside the U.S., who are not U.S. citizens. As per the requirements of the Securities Act, the notes cannot be sold within the U.S. or to any U.S. person, except pursuant to an exemption.

We believe the issue will be beneficial to Tenet as the subsequent repayment of 9% senior secured notes will significantly reduce interest payments. Although total debt of the company will also increase, the new debt will mature much after the old notes do, thereby improving the company’s maturity profile.

Tenet reported third-quarter income from continuing operations, net of tax of $16 million or 4 cents per share, beating the Zacks Consensus Estimate of one cent and operating loss of $14 million or one cent per share in the prior-year quarter. The company competes with HCA Inc. (HCA - Snapshot Report) and Community Health Systems Inc. (CYH - Snapshot Report).

On Friday, the shares of Tenet closed at $4.86, down 3.19%, on the New York Stock Exchange. The company carries a Zacks #3 Rank, which implies a short-term Hold rating.

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