Tenet furloughs 500, offers $700M senior secured notes due to COVID-19

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Citing financial uncertainty brought by the COVID-19 pandemic, Dallas-based Tenet Healthcare plans to raise cash and implement a cost-savings program that includes furloughing 500 workers and deferring capital projects, according to an investor presentation April 2. 

Tenet said that its 65 hospitals are not overwhelmed by COVID-19 patients, but it is seeing a sharp decline in patient volume due to the suspension of elective procedures and is being forced to pay higher prices to procure personal protective gear for staff. 

The hospital chain's ambulatory surgery business, United Surgical Partners International, is feeling the biggest financial hit and patient volume dip, Tenet officials said. Most of its surgery centers are taking on emergent procedures just one or two days per week.

In an effort to offset some of the financial impact from a decline in volume, Tenet will furlough 500 full-time nonclinical workers. 

Affected employees will have health insurance during the furlough. The insurance will be paid for by Tenet. It is unclear how long the furlough will last, according to the presentation.

The company also is postponing the annual funding of 401(k) matches until later this year and deferring capital expenditures like acquisitions or upgrades, as well as suspending spend on marketing, human resources and IT.

Despite postponing 401(k) match payments for most employees, Tenet said in a statement to Becker's that it will still provide match payments to furloughed employees.

Given the uncertainty around the evolving COVID-19 pandemic, Tenet has revised its previously announced guidance for the first quarter and full-year of 2020. Tenet is still expected to announce its first-quarter results in May, and at that time will have a better idea about the full-year guidance. 

In addition to the cost-savings plan, Tenet CFO Dan Cancelmi said the company is also working on several ways to raise cash. 

During the investors meeting, Tenet said it would issue $500 million in senior notes that would be used to pay off debts or become cash on hand. 

However, after the investors meeting, Tenet upsized the offering of senior secured first lien notes to $700 million. The offering for the notes that mature in 2025 is expected to occur April 7.

In addition, Tenet is working to increase the borrowing capacity under its revolving line of credit to $2 billion, which is a boost of $500 million.

Tenet also expects to generate proceeds of $350 million when the sale of its Memphis hospitals closes later this year.

On the heels of the investors call, Fitch Ratings revised Tenet's outlook to stable from positive, and affirmed its "B" issuer default rating. 

"The revision in the outlook reflects Fitch's expectation that Tenet will reduce leverage more slowly than anticipated at the time of the prior rating review, due to the effects of the coronavirus pandemic on revenues, EBITDA and cash generation during 2020," Fitch said. 

The rating agency also assigned an expected rating of "B+/RR3" to Tenet's proposed senior secured first lien notes.

 

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