Tenet Healthcare Investors Frown Upon Bank Credit Agreements
Shares in Tenet Healthcare Corp. tumbled 14% on Wednesday as investors reacted to a new bank credit agreement that suggested the nation’s second-largest hospital chain could face a cash shortage.
Santa Barbara-based Tenet saw its shares fall to a 52-week low of $9.90 before closing at $10.06 on the New York Stock Exchange, down $1.66 for the day. About 32.6 million shares traded hands -- seven times the daily average -- indicating that a big investor sold its holdings, analysts said.
On Tuesday, Tenet announced that it had renegotiated credit agreements with most of its banks in order to remain in compliance while it sells off 27 of its 100 hospitals. Analysts said banks appeared nervous about Tenet’s finances because the new deal called for loans to be secured by stock and other guarantees.
The banks also slashed what they were willing to lend to Tenet from $1.2 billion to $800 million, and they made only $500 million of that available in cash. Tenet said it had $425 million in cash on hand, below what analysts had expected, indicating that the company’s spending was outpacing revenue.
“Their cash flow is more negative than we thought, and their credit facility has shrunk so much. You put those two things together, and you say if they don’t stop the hemorrhaging they don’t have another four quarters of liquidity,” said Sheryl Skolnick, an analyst with Fulcrum Global Partners who has a “sell” rating on Tenet.
The company has said it is in a negative cash flow situation, but Tenet spokesman Steven Campanini said he could not comment further.
Tenet is scheduled to report its fourth-quarter earnings Monday. The company has said it is trying to improve its cash flow by selling weaker hospitals to focus on its more profitable sites.
“They’ve said they are going to have negative cash flow this year,” Skolnick said. “I’m just concerned that it’s going to be worse than they said.”
Tenet still faces hundreds of lawsuits over allegations that doctors at its Redding hospital performed unnecessary heart surgeries. It also is dealing with government probes and shareholder lawsuits over a range of business practices, including Medicare billing and its financial relationships with doctors.
Analysts estimate that Tenet may end up paying $1.3 billion to settle its legal matters.
Among Tenet’s legal problems is a dispute with the Internal Revenue Service over a tax bill, said Andreas Dirnagl, an analyst at Harris Nesbitt Gerard.
