Tenet Healthcare Corporation
) has recently announced that it is issuing 5-year senior
unsecured notes worth $600 million. The notes carry an interest
rate of 5% per annum and are scheduled to mature in 2019. The
notes will be subordinated to all of Tenet's present and future
senior secured obligations.
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Tenet intends to use the proceeds from the transaction to repay
its debts under the company's senior secured revolving credit
facility and transaction fees and expenses related to it. The
funds will also be utilized to pay for other general and
The aforementioned debt issuance will require Tenet to pay an
annual interest of $30 million. Nevertheless, the company's solid
operational performance generates enough funds to service the
However, interest expenses of Tenet have been on a surge over the
last two years. In 2012 it increased 9.9% from that in 2011 and
in 2013, expenses scaled up 15% year over year. The above
issuance calls for a further increase in interest expenses,
thereby pressuring margin expansion.
Peeping into the balance sheet of the company shows that Encore's
debt-to-capital ratio has also been deteriorating over the past
two years. This metric deteriorated 7 percentage points to 0.82x
in 2012 and another 11 percentage points to 0.93x in 2013. The
above issuance is expected to impact this ratio further, making
the balance sheet highly leveraged.
This healthcare stock has been issuing debts to fund its
outstanding debt repayments as well as inorganic growth
initiatives for quite some time. Tenet has resorted to several
debt issuances in 2013. The company issued 4.5% notes worth $850
million in Jan 2013 and completed it in February. Again in May
2013, Tenet announced 4.375% notes worth $1.05 billion which was
completed later that month. In Sep 2013, the company issued two
notes offerings - $1.8 billion senior secured notes with 6%
interest rate and a $2.8 billion note offering carrying an
interest rate of 8.125% per annum. As a result, the long-term
debt burden of the company increased to a substantial 66% in
Tenet currently carries a Zacks Rank #5 (Sell). Some
better-ranked stocks in the healthcare services space include
Brookdale Senior Living Inc.
Almost Family Inc.
). All three stocks carry a Zacks Rank #1 (Strong Buy).