Two for-profit hospital systems last week announced they are issuing corporate debt to repay bank debt and purchase hospitals.
Tenet Healthcare Corp., Santa Barbara, Calif., sold $400 million in 10-year senior notes through co-managers Donaldson, Lufkin & Jenrette Securities Corp. and J.P. Morgan Securities, ramped up from the $350 million the company had at first intended to offer.
"It was purely an opportunity to take advantage of liquidity in the market and get debt pricing that is at or very, very close to the way that our securities are trading in the market, and that's difficult to do," said David Dennis, Tenet's vice chairman, chief financial officer and chief corporate officer.
The 111-hospital chain intends to use the proceeds of the notes, which have a yield of 9.25%, to pay down bank debt.
"It's basically moving the maturity out for 10 years," Dennis said.
Moody's Investors Service gave the Tenet notes a Ba1 rating, which is the same speculative-grade rating assigned to the company's other outstanding corporate issues. Standard & Poor's assigned a BB+ rating, also at the upper end of the speculative grade range, which takes into account the company's strong market position within the industry but significant debt burden.
"One of our initiatives in this current environment is to de-leverage ourselves, to retire our bank debt," Tenet spokesman Harry Anderson said. "This is the latest in a series of things we've done."
As of May 31, the end of Tenet's fiscal year, the company had $5.7 billion in long-term debt, he said.
Unlike Tenet, which doesn't plan to buy more hospitals this year, Universal Health Services, King of Prussia, Pa., has issued $170 million worth of convertible securities to finance major acquisitions and, like Tenet, to repay debt. The discounted debentures will be due in 2020 and will be convertible to Class B common stock. Earlier this month, UHS announced plans to buy 10 psychiatric hospitals and a closed facility for $105 million from Charter Behavioral Health Systems. UHS also plans several general acute-care acquisitions, officials said.