26 February 2019 by jbchevrel
Tenet Healthcare Corp (THC) saw its 5y CDS tighten by more than 60bp today, after communicating solid 4Q results and positive 2019 guidance. The stock was also up more than 10% intraday. In effect, EBITDA growth guidance range midpoint was unexpectedly lifted from 4.0% to 5.5%. While 2018 EBITDA was aided by cost savings and improving admissions trends, the 2019 one can potentially be helped by stronger Medicare rate increases. Net leverage (5.6x) was down compared to last year, illustrating the management’s continued commitment. With cash of c$0.4B and $1B revolving credit facility, Tenet had $1.4B liquidity on hand. Additionally, during the earnings call, it was confirmed that THC has entered an exclusivity agreement on its financial services unit (Conifer). But the CEO failed to give many more details on the topic. In particular, it is not clear yet that the Conifer sale (potential) proceeds would be totally used to de-leverage, as opposed to favour shareholders. Other risks ahead include the possible repeal of the Affordable Care Act and some struggling hospitals in Illinois. Those risks might make it more challenging than expected to achieve the <5x leverage goal by the end of this year.