Tenet Healthcare Corp. sold $1 billion in bonds last week, raising suspicions that the Santa Barbara, Calif., company is closing in on a global settlement of an array of federal investigations.
Tenet officials, however, said that wasn't the case, and industry observers believed them.
The timing of the bond sale sparked the suspicions. Two reports published just a few days before the bond sale was announced suggested that Tenet and federal officials were making progress toward a settlement of $1 billion or more. As part of the initial reports, Tenet spokesmen said the company not only wasn't close to a settlement but also couldn't reliably estimate how much money Tenet might pay in damages in a settlement.
"This transaction is in no way linked with recent market and media speculation about a possible settlement with the Department of Justice," Tenet spokesman Steven Campanini said last week. While the company continues to try to resolve the investigations, it is too early to speculate on the size and shape of a possible settlement, Campanini said.
Tenet refinanced its debt to spread out the maturities, Campanini added. The company used some of the proceeds of the bond sale to repurchase $450 million in debt that was set to come due in 2006 and 2007.
Tenet is giving itself some financial breathing room and doing so before interest rates head higher, said Luke Coha, a healthcare credit analyst for Fitch Ratings. Fitch rated the bonds B-, consistent with the company's senior unsecured-credit rating.
Tenet has told investors that it expects to use $500 million to $600 million more in cash this year than it takes in. The company expects to improve its cash position by at least $300 million to $400 million in 2005, with a chance of breaking even on cash flow (March 22, p. 8).
"This kind of buys them some time on the asset sales," Coha said, referring to the 30 hospitals Tenet plans to divest. Tenet has announced a pending deal for only one of the hospitals, Brownsville (Texas) Medical Center.
As for talk of a settlement, Coha said he would expect the company to say more publicly if a settlement were near, at least outlining some broad parameters.
Coha said it is a good sign for Tenet that the company was able to sell $1 billion in unsecured bonds in a private placement. That suggests that those investors are confident in Tenet's prospects.
Tenet still faces problems with bad-debt expense, disputes with its managed-care payers and performance declines at the hospitals held for sale, Coha said.