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15 Oct 2001
MOODY'S UPGRADES TENET HEALTHCARE'S SR RATINGS TO Baa3 FROM Ba1
Approximately $5.0 Billion of Bank Facilities and Debt Securities Affected.
New York, October 15, 2001 -- Moody's Investors Service raised the senior ratings of Tenet Healthcare
Corporation to Baa3 from Ba1. Moody's notes that this rating action
is based on our belief that Tenet continues to benefit from good admissions
trends, a focus on operations and expense controls, and improved
managed care contracting - all of which have contributed to dramatic
improvement in Tenet's operating and free cash flow. As a result,
Tenet has significantly reduced debt levels over the past two years.
Moody's believes that the company will adhere to financial policies which
will enable Tenet to improve shareholder value but at the same time,
sustain metrics at a level which support an investment grade credit profile.
Therefore, the rating outlook is stable.
Tenet's management has stated that it will more actively seek targeted
acquisitions as well as potential share buybacks to improve shareholder
value. We believe the company would prefer to use free cash flow
for acquisitions of not-for-profits within existing markets
or in certain circumstances, within new markets. Absent these
opportunities, we believe the company would consider share buybacks
in order to add shareholder value. Stronger operating cash flow
should provide Tenet with more financial flexibility to fund these initiatives.
In addition, our expectation is that management may use additional
debt to support share buyback initiatives but will maintain debt to EBITDA
levels at 2.0 times - this should allow cash flow to debt
adjusted for rent expense to be maintained within the low-to-mid
Tenet is the second largest hospital company in the nation with major
market presence in several markets, including Southern California,
South Florida, New Orleans and El Paso. This market presence
has enabled Tenet to enjoy improved managed care contracting over the
past two years with average rate increases in the 6% range.
In addition, Medicare reimbursement has stabilized, with additional
Medicare give-backs legislated in December 2000. These changes,
combined with favorable same store admission trends and impressive attention
to operating efficiencies and cash collections has resulted in much improved
operating and free cash flow.
Offsetting these strengths, despite the diversity Tenet enjoys due
to its large number of facilities, about 60% of total revenues
are concentrated in California, Florida and Texas; we believe
this provides some vulnerability to state specific economic and legislative
changes such as seismic code regulatory requirements in California.
In addition, despite operating improvements, we believe the
hospital sector will continue to be challenged by higher cost trends,
particularly in the areas of labor, pharmaceuticals and medical
technology. The outlook for reimbursement from governmental programs
- both Medicare and Medicaid - may be less certain should
more government spending be allocated to defense needs. Further,
while we have witnessed a more favorable managed care contracting environment,
we are uncertain that this will be sustainable, especially in light
of recent events which may accelerate economic weakness, translating
into lower premiums for managed care companies.
Tenet Healthcare Corporation: Baa3 from Ba1 senior notes,
Ba1 from Ba2 subordinated notes.
American Medical International: Baa3 from Ba1 Eurodebentures.
Headquartered in Santa Barbara, California, Tenet Healthcare
Corporation operates approximately 113 hospitals and is the nation's second
largest for-profit hospital company.
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233
VP - Senior Credit Officer
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233
No Related Data.
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