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Tenet Healthcare (THC) Offers Senior Secured Notes of $1.45B

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Tenet Healthcare Corporation (THC - Free Report) recently announced the pricing of senior secured first-lien notes with an aggregate principal amount of $1.45 billion.

The notes fetch an interest rate of 4.375% p.a. and are set to mature on Jan 15, 2030. Subject to standard closing and market conditions, the notes offering is anticipated to be completed on Dec 1, 2021.

With the proceeds from the sale of the notes (after making payments for fees and expenses), Tenet Healthcare plans to  fund the purchase of the ownership stakes of Surgical Center Development #3, LLC and Surgical Center Development #4, LLC in a portfolio of 92 ambulatory surgery centers and other specific linked assets.

THC intends to utilize the remaining amount for general corporate purposes like repayment of other debt, cash on balance sheet, working capital and capital expenditures.

However, if the above-mentioned acquisition, toward which Tenet Healthcare prioritizes to utilize the proceeds, does not materialize, THC will use the same in meeting general corporate expenses stated above.

By issuing senior notes amid a continued low-interest rate environment, Tenet Healthcare can obtain funds and boost financial flexibility. This move in turn, underscores THC’s efforts to reduce the interest expenses, which can otherwise put pressure on the margins.

Tenet Healthcare seems successful in pursuing its endeavor as interest expenses declined 7.8% in the first nine months of 2021 from the year-ago comparable period’s level.

Time and again, Tenet Healthcare resorted to moves similar to the latest one. In May 2021, THC had issued $1.4 billion 4.25% senior secured first-lien notes, set to mature in 2029, and intends to utilize the proceeds coupled with cash on hand to redeem its entire outstanding 5.125% senior secured second-lien notes due 2025.

As of Sep 30, 2021, Tenet Healthcare had $13.9 billion of senior notes.

Tenet Healthcare can continue to service its debt uninterruptedly on the back of sufficient cash reserves and adequate cash-generation abilities. These can be utilized in undertaking growth-related initiatives and debt repayments, which might sustain the stock’s creditworthiness.

THC also has $1.8 billion left for borrowing under its revolving credit facility as of Sep 30, 2021.

Tenet Healthcare’s leverage ratio has been improving for a while. THC’s total debt to total capital of 89.6% at the third-quarter end not only improved 480 basis points (bps) from the level achieved at 2020 end but also bettered the industry’s figure of 90.9%.

Other medical stocks like Molina Healthcare, Inc. (MOH - Free Report) , Universal Health Services, Inc. (UHS - Free Report) and Centene Corporation (CNC - Free Report) continue to issue senior notes with an aim to reduce the debt burden.

As of Sep 30, 2021, Molina Healthcare had 4.375% $800 million senior notes, due 2028, 5.375% $700 million senior notes, due 2022 and another 3.875% $650 million  senior notes due 2030. MOH’s leverage ratio of 48.3 at the third-quarter end improved 460 bps from the 2020-end figure.

Universal Health Services’ senior notes as on Sep 30, 2021 totaled $2 billion. The leverage ratio of UHS came in at 37.1 at the third-quarter end, which improved 50 bps from the 2020-end figure.

Centene’s total senior notes totaled $16 billion as of Sep 30, 2021. CNC’s leverage ratio of 41.5 at the third-quarter end deteriorated 220 bps from the 2020-end figure.

Shares of Tenet Healthcare have soared 150.7% in a year compared with the industry’s rally of 47.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment ResearchImage Source: Zacks Investment Research

While shares of Molina Healthcare and Centene have jumped 44.5% and 15.6%, respectively, in a year,  Universal Health Services' stock has lost 2.9% in the same time frame.