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Rating Action:

Moody's downgrades Tenet's CFR to B2; secured notes to Ba3; unsecured notes to Caa1; outlook is stable

20 May 2016

New York, May 20, 2016 -- Moody's Investors Service, ("Moody's") today downgraded the Corporate Family Rating of Tenet Healthcare Corporation to B2 from B1 and Probability of Default Rating to B2-PD from B1-PD. Moody's also downgraded the company's senior secured notes to Ba3 (LGD 2) from Ba2 (LGD 2) and senior unsecured notes to Caa1 (LGD 5) from B3 (LGD 5). Finally, Moody's affirmed Tenet's Speculative Grade Liquidity Rating at SGL-2. The rating outlook was changed to stable from negative.

"Tenet's financial leverage will remain very high, even as it recognizes the benefit of recent acquisitions and portfolio rationalization," said Dean Diaz, Moody's Senior Vice President. "Modest free cash flow and the need to maintain adequate liquidity to address litigation exposure will likely prevent any meaningful debt repayment in the near term," continued Diaz.

The downgrade of the ratings reflects Moody's expectation that Tenet's debt to EBITDA less distributions to minority interests will likely remain above 6.0 times over the next 12 months. While earnings growth will likely continue, Tenet will have limited resources to meaningfully reduce the amount of debt outstanding. Further, Moody's expects that the company will continue to pursue acquisitions, predominantly in the outpatient service area, and use cash -- over time -- to buy the remaining interest in a joint venture from a partner.

The stable rating outlook reflects Moody's expectation that the company will continue to realize earnings and cash flow growth that will modestly improve credit metrics. However those improvements will be constrained by the company's very high leverage and lack of prepayable debt in the capital structure.

The affirmation of the SGL-2 Speculative Grade Liquidity Rating reflects Moody's expectation that the company will maintain good liquidity. Moody's anticipates that the company's cash flow, considerable available cash balance and bank revolver provide sufficient liquidity, even if a litigation payment is due in the near term. Further, the company has no near term maturities.

Following is a summary of Moody's rating actions.

Ratings downgraded:

Corporate Family Rating to B2 from B1

Probability of Default Rating to B2-PD from B1-PD

Senior secured notes to Ba3 (LGD 2) from Ba2 (LGD 2)

Senior unsecured notes to Caa1 (LGD 5) from B3 (LGD 5)

Ratings affirmed:

Speculative Grade Liquidity Rating at SGL-2

The rating outlook was revised to stable from negative.

RATINGS RATIONALE

Tenet's B2 Corporate Family Rating reflects the company's very high financial leverage and an aggressive debt-funded acquisition strategy. Tenet has added scale and earnings diversification through its recent acquisitions, but to date has not fully benefited from synergies, which has held leverage high. However, Tenet's significant scale in each of its service lines and Moody's expectation that the company can successfully integrate newly acquired businesses support the rating. The rating also reflects Moody's expectation that Tenet will remain disciplined in the use of incremental leverage for shareholder initiatives or other acquisitions until debt to EBITDA is reduced.

The ratings could be upgraded if Tenet can effectively integrate and realize synergies from its recent acquisitions and maintains a more measured approach than it has in the past to debt-funded transactions. For an upgrade, Moody's would also need to see the company realize improvements in cash flow and interest coverage metrics, and be able to reduce and sustain debt/EBITDA around 5.0 times.

Tenet's ratings could be downgraded if the company faces operational challenges or pursues leveraging acquisitions, share repurchases or shareholder distributions. More specifically, the ratings could be downgraded if debt/EBITDA does not decline below 6.0 times over the next 18 months. Finally, the ratings could also be downgraded if the company's liquidity weakens.

Tenet, headquartered in Dallas, Texas, is a healthcare services company. The company's subsidiaries operate 84 hospitals, 20 short-stay surgical hospitals and over 475 outpatient centers. The company also offers other services, including six health plans and Conifer Health Solutions, which provides healthcare business process services. Tenet recognized $19.3 billion in revenue in the twelve months ended March 31, 2016.

The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

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Dean Diaz
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades Tenet's CFR to B2; secured notes to Ba3; unsecured notes to Caa1; outlook is stable
No Related Data.
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