Fitch upgrades Tenet Healthcare’s issuer default rating to ’BB-’

Investing.com -- Fitch Ratings has upgraded the Issuer Default Rating (IDR) of Tenet Healthcare Corp (NYSE:THC). from ’B+’ to ’BB-’, according to an announcement made on Thursday, March 20, 2025. The ratings agency also affirmed the ratings for the company’s first lien notes at ’BB’, second lien notes and senior unsecured notes at ’BB-’, and the revolver’s rating at ’BB+’/’RR1. The outlook for the company remains stable.

The upgrade in IDR reflects Tenet’s improved competitive position, particularly in its Ambulatory Care segment, which has consistently shown strong EBITDA growth. The company’s divestitures in 2024 also led to a significant reduction of debt by $2.1 billion, thereby enhancing liquidity. By the end of 2024, Tenet had $3.0 billion in cash on hand.

Fitch noted that Tenet’s EBITDA leverage had decreased substantially to 3.9x at the end of 2024, well below the agency’s 4.5x positive rating sensitivity for the previous B+ IDR. This decrease was largely due to the company’s divestitures, which funded $2.1 billion of debt reduction. Fitch anticipates that this trend will continue, with EBITDA leverage expected to reach approximately 3.5x in 2025-2026.

In 2024, Tenet generated $1.2 billion in free cash flow (FCF), excluding taxes paid on divestitures. This represents an increase from $1.0 billion in 2023. Fitch now expects that Tenet’s FCF will continue to grow, likely reaching about 7% of revenue over its rating horizon, an increase within the range of $1.4 billion to $1.7 billion annually.

Tenet’s Ambulatory Care segment has been a key driver of EBITDA growth. The company, one of the largest for-profit operators of acute care hospitals and ambulatory surgery centers (ASCs), has seen sustainable, secular ASC tailwinds and continuing ASC investments drive at least mid-single-digit consolidated EBITDA growth.

Fitch expects Tenet’s EBITDA margin to improve further in 2025 due to volume growth in its Hospital Operations segment and the expiration of heavily-subsidized ACA exchange coverage at the end of 2025. The ratings agency also anticipates further benefits from Tenet’s high-margin ASCs expanding via organic growth, capital investment and M&A.

In comparison to its industry peers, Tenet’s Long-Term IDR of ’BB-’ reflects higher EBITDA leverage relative to HCA Healthcare (NYSE:HCA), Inc. and Universal Health Services (NYSE:UHS), Inc. However, Tenet’s operating and FCF margins are now in line with those of Universal Health Services, Inc.

Fitch’s key assumptions for Tenet include revenues of $21.1 billion in 2025, $22.2 billion in 2026, $23.2 billion in 2027 and $24.2 billion in 2028. The agency also expects EBITDA growth of 5%-8% annually, including EBITDA margin improvement from 18.1% in 2024 to 18.6% in 2025, 19.0% in 2026, 19.6% in 2027 and 19.9% in 2028.

The agency noted that negative rating action or downgrade could occur if EBITDA Leverage is sustained above 4.5x or if FCF is sustained below 5.0% of revenue. On the other hand, positive rating action or upgrade could occur if EBITDA Leverage is sustained below 3.5x or if FCF is sustained above 7.5% of revenue.

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