Ct Healthmarket via BizWire
06-23-2003, 04:00 PM
CHICAGO--(BUSINESS WIRE)--June 23, 2003--Fitch Ratings has lowered
Tenet Healthcare Corp.'s (Tenet) senior unsecured debt and bank
facility ratings to 'BB+' from 'BBB-'. The ratings remain on Rating
Watch Negative. The change in ratings is in response to the company's
announcement that expected operational performance will suffer from a
host of issues impacting the company's top and bottom line. The
Negative Rating Watch is in deference to still outstanding issues
related to investigations regarding the company's previous pricing
practices, investigations at individual facilities stemming from
allegations of physician and management misconduct as well as
outstanding shareholder suits.
Tenet announced the results of a bottom-up budgeting process and
provided related guidance for 2003. While Tenet management had not
previously discussed operational 2003 guidance, the announced results
are below Fitch expectations.
A current driving force for Tenet's top-line concerns is
difficulty in achieving market-level price increases with some managed
care payors. For its part, Tenet management is accepting lower
revenues in the current year while positioning for 2004. In addition,
Tenet, like the rest of the companies in its sector is also addressing
industry-wide pressures including an acceleration in nursing wages, an
expected decline in Medicaid revenues in states with budget
difficulties, rising malpractice insurance expenses and rising
technology costs. Some mitigants include apparently stable Medicare
pricing and patient volumes which have held fairly-strong for Tenet,
while soft industry-wide.
While Tenet's coverage will remain sufficient and leverage modest
based on 2003 expectations, cash flow will be poor. Fitch anticipates
that for 2003 Tenet's coverage (EBITDA/interest) will likely be
between 5.0 times (x) and 6.0x and leverage (total debt/EBITDA) will
be between 2.0x and 2.2x. Tenet's total debt at March 31, 2003 was
approximately $4 billion. The company, however, is likely to generate
only minimal free cash flow for 2003 given its capital expenditure
commitments. Tenet management indicates that capital expenditures are
likely to total between $800-$900 million for 2003 and as such, cash
flow from operations is expected to be entirely consumed by capital
expenditures. Spending on capital projects is expected to scale back
in 2004 to approximately $700 million.
The company has reaffirmed its commitment to its target leverage
ratio of at, or about 2.0x. Fitch anticipates that overall debt levels
will decrease by yearend as Tenet also announced that funds from its
pending asset sales (the company announced in March that it plans to
sell or close 14 hospitals) will be used for debt reduction. The
company anticipates using $500 million of the proceeds to reduce debt.
Liquidity is still robust given there are no amounts outstanding on
the company's $1.5 billion credit facility, and anticipated proceeds
from asset sales. Due to the company's recent debt restructuring, the
company faces no material maturities until 2006.
Tenet Healthcare Corp.'s (Tenet) senior unsecured debt and bank
facility ratings to 'BB+' from 'BBB-'. The ratings remain on Rating
Watch Negative. The change in ratings is in response to the company's
announcement that expected operational performance will suffer from a
host of issues impacting the company's top and bottom line. The
Negative Rating Watch is in deference to still outstanding issues
related to investigations regarding the company's previous pricing
practices, investigations at individual facilities stemming from
allegations of physician and management misconduct as well as
outstanding shareholder suits.
Tenet announced the results of a bottom-up budgeting process and
provided related guidance for 2003. While Tenet management had not
previously discussed operational 2003 guidance, the announced results
are below Fitch expectations.
A current driving force for Tenet's top-line concerns is
difficulty in achieving market-level price increases with some managed
care payors. For its part, Tenet management is accepting lower
revenues in the current year while positioning for 2004. In addition,
Tenet, like the rest of the companies in its sector is also addressing
industry-wide pressures including an acceleration in nursing wages, an
expected decline in Medicaid revenues in states with budget
difficulties, rising malpractice insurance expenses and rising
technology costs. Some mitigants include apparently stable Medicare
pricing and patient volumes which have held fairly-strong for Tenet,
while soft industry-wide.
While Tenet's coverage will remain sufficient and leverage modest
based on 2003 expectations, cash flow will be poor. Fitch anticipates
that for 2003 Tenet's coverage (EBITDA/interest) will likely be
between 5.0 times (x) and 6.0x and leverage (total debt/EBITDA) will
be between 2.0x and 2.2x. Tenet's total debt at March 31, 2003 was
approximately $4 billion. The company, however, is likely to generate
only minimal free cash flow for 2003 given its capital expenditure
commitments. Tenet management indicates that capital expenditures are
likely to total between $800-$900 million for 2003 and as such, cash
flow from operations is expected to be entirely consumed by capital
expenditures. Spending on capital projects is expected to scale back
in 2004 to approximately $700 million.
The company has reaffirmed its commitment to its target leverage
ratio of at, or about 2.0x. Fitch anticipates that overall debt levels
will decrease by yearend as Tenet also announced that funds from its
pending asset sales (the company announced in March that it plans to
sell or close 14 hospitals) will be used for debt reduction. The
company anticipates using $500 million of the proceeds to reduce debt.
Liquidity is still robust given there are no amounts outstanding on
the company's $1.5 billion credit facility, and anticipated proceeds
from asset sales. Due to the company's recent debt restructuring, the
company faces no material maturities until 2006.
