Tenet Healthcare Corp. Outlook Revised To Stable From Positive On Coronavirus Impact; Ratings Affirmed

  • Tenet Healthcare Corp., like many health systems, will be impaired by the coronavirus pandemic primarily because of the need to postpone elective procedures and people avoiding medical institutions.
  • We expect patient volume, profit margins, and cash flow to decline for an indeterminate period. We do not expect Tenet to sustain the financial profile, including cash flow, consistent with a higher rating.
  • We are revising our outlook to stable from positive and affirming our ratings on Tenet, including the 'B' issuer credit rating.
  • The stable outlook reflects our expectations for the business disruption impact from the pandemic and that, although we expect the disruption to be temporary, it will take time for the company to return to the credit profile we expected.
NEW YORK (S&P Global Ratings) March 25, 2020--S&P Global Ratings today took the rating actions listed above.
The rating action reflects our view for how the COVID-19 pandemic could affect Tenet. The company has improved its operations and thus financial performance and cash flows. However, we believe that trajectory will reverse for an unknown period because of the pandemic.
The outlook reflects our view of operating performance and cash flow amid uncertainty from the COVID-19 pandemic. While we believe Tenet's recent performance has improved, it is difficult to predict if and when the company can return to pre-outbreak levels. We expect performance to be more consistent with the current rating for the time being.
We could lower our rating on Tenet if there are large patient declines with no return to recent levels, such that we expect free cash flow to reverse from its recent improvement with discretionary cash flow to debt declining below 1.5x. This could also occur if Tenet faces unexpected adverse reimbursement or regulatory changes, or it adopts more aggressive financial policies than we envision.
We could raise our ratings on Tenet if we regain confidence that the company can sustainably generate discretionary cash flow to debt of at least 2.5% while reducing leverage below 7x.
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