S&P cuts Tenet ratings

Standard & Poor's said it lowered its corporate credit and senior unsecured debt ratings on health care service provider Tenet Healthcare Corp. to B+ from BB-, after the company announced its intention to sell a number of low-margin hospitals and take a $1.4 billion pretax charge.

The rating is placed on CreditWatch with negative implications.

S&P said the downgrade reflects concern with Tenet's ability to reconstruct pricing on its managed care business, cash flow erosion during an asset divestiture process, and the upcoming need for another bank loan leverage covenant waiver. Liquidity is expected to weaken as the bank loan size may be reduced if a waiver is received, and some combination of cash and/or bank debt may be necessary to meet cash needs over the next year.

Tenet has announced that it intends to sell 27 hospitals that cumulatively generated poor margins, in addition to the $1.4 billion pretax charge. This highlights the magnitude of the company's underlying difficulties and the fact that its asset quality is worse than expected.

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