Shares of Tenet Healthcare Corporation THC fell 0.68% in the last trading session after the company issued senior secured notes worth $900 million, due 2020. These notes were priced at a LIBOR plus 3.50% per annum. Additionally, notes worth $1.9 billion were issued at 6.75% per annum. The second set of notes is scheduled to mature in 2023.
A portion of the proceeds from the issuance will be used to repay term loans worth $400 million that are due under the Interim Loan Agreement. Another part of it will be used to pay for and temporarily reduce the outstanding amount under the Credit Agreement dated Oct 19, 2010. Any proceeds in excess to this would be used for expenses related to the joint venture with United Surgical Partners International, payment regarding acquisition of equity interests in BB Blue Holdings, Inc., and for other general and corporate purposes.
The $900 million notes will require Tenet Healthcare to pay interests quarterly, while the $1.9 billion notes will bear annual interests. Owing to its solid operational performance the company generates enough funds to service the debt uninterruptedly.
Tenet Healthcare’s interest expenses have been increasing over the last three years. It increased 9.9% year over year in 2012, 15.1% in 2013 and 59.1% in 2014. Keeping with the trend, it increased 9.3% in the first quarter of 2015 as well. The latest debt issuance will likely put pressure on this metric even more.
The company’s balance sheet reflects an increase in its debt burden as of Mar 31, 2015, from that at the end of 2014. The latest issuance, when added to Tenet Healthcare’s existing debt portfolio, is expected to weigh on the debt burden further, thereby hampering the creditworthiness of the company.
Tenet Healthcare currently carries a Zacks Rank #2 (Buy). Other stocks in the hospital space that also look attractive at current levels include Acadia Healthcare Company, Inc. ACHC, HCA Holdings, Inc. HCA and MEDNAX, Inc. MD. All three stocks have the same Zacks Rank as Tenet Healthcare.
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