Moody’s Gives Tenet notes Ba3, view to negative

Moody's Investors Service said it assigned a Ba3 (LGD 2) rating to Tenet Healthcare Corp.’s offering of senior secured second-lien notes due 2022.

The agency also affirmed Tenet's existing ratings, including the B2 corporate family rating and B2-PD probability of default rating.

The outlook was changed to negative from stable.

Proceeds from the $500 million note offering will be used to repay $475 million outstanding under the company's revolving credit facility and for general corporate purposes. The revolver was used to fund a portion of the $517 million settlement with the U.S. government regarding alleged kickbacks at four of its former hospitals.

“The change in the rating outlook to negative reflects Moody's view that leverage will now likely remain well above 6.0 times through 2018,” the agency said in a news release.

“Moody's estimates that the bond offering will increase debt/LTM EBITDA at September 30, 2016 by 0.2 times to a very high 6.9 times, which is in line with the rating agency's expectations at the time the settlement was disclosed.

“However, the use of the bond, which will not be callable for two years, to fund the payment represents a more permanent piece of capital than Moody's had expected, and increases the likelihood that leverage will remain elevated. Further, Moody's anticipates that the company may have to access capital again in early 2017 to fund the next put of USPI equity from Welsh, Carson, Anderson & Stowe.”

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