Fitch rates Tenet notes B-

Fitch Ratings said it assigned a B- rating with a recovery rating of RR5 to Tenet Healthcare Corp.’s $500 million 5% senior unsecured notes due 2019.

The proceeds will be used to refinance the 9¼% senior notes due 2015.

The outlook is stable.

During the fourth quarter of 2013, Tenet acquired Vanguard Health Systems, a competing for-profit hospital operator, in an all-cash transaction valued at $4.3 billion. The acquisition was entirely debt funded, resulting in pro forma leverage of 5.7x, Fitch said.

The agency said it views the purchase of Vanguard as strategically sound because it will enhance the geographic scope of Tenet’s portfolio of acute-care hospitals and add operational diversification through Vanguard’s health-plan business, the agency said.

The strategic rationale for consolidation in the hospital industry is encouraged by reforms favoring larger, integrated systems of care delivery, including the Affordable Care Act, Fitch said.

The most important risks to Tenet’s credit profile are the company’s strained free cash flow and industry lagging profitability, the agency added.

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