S&P ups Tenet notes, rates notes BB-, CCC+

Standard & Poor's said it affirmed its B corporate credit rating on Tenet Healthcare Corp.

The outlook is stable.

At the same time, the agency assigned its BB- issue-level and 1 recovery rating to the company's proposed $500 million senior secured notes.

S&P also raised the issue-level ratings on the existing secured debt to BB- from B+ based on a revision in the recovery rating to 1 from 2. The 1 recovery rating indicates expectations of very high (90% to 100% range) recovery on this debt in the event of payment default. The agency revised the recovery rating on this debt because it now expects Tenet’s enterprise value in a distressed scenario will be higher based on the additional income and diversity from its ownership of USPI, Aspen, and its growing Conifer business.

Tenet also plans on issuing $1.9 billion of unsecured notes. S&P its assigning its CCC+ issue-level rating and 6 recovery rating to this debt. The 6 recovery rating indicates an expectation for negligible (0% to 10%) recovery on this debt in the event of default.

"Although we view the business risk profile more favorably, we expect leverage to remain above 6x and we expect discretionary cash flow after satisfying Welsh Carson's put option will remain below $200 million over the next 12 months," S&P credit analyst Tulip Lim said in a news release.

Welsh Carson is required to put a minimum of 12½% of its remaining stake in USPI beginning on Jan. 1, 2016. S&P expects Tenet will satisfy the put in cash, even though it has the option to settle it in stock, and we view this to be similar to a debt-like obligation.

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