Is Moody's being prematurely positive about Tenet?

Given how leveraged Tenet is, and how shaky its repayment prospects seem to be, it's actually a bit surprising that Moody's isn't more leery of its future prospects. Moody's Investors Service has upgraded Tenet's credit outlook from stable to positive, a move that reflects Moody's happiness with the company's recent debt restructuring efforts and growing income growth. The outlook is part of a mixture of individual ratings on debt offerings, some of which are actually downgrades, but still suggests an enviable level of long-term faith in the company.

Moody's analysts say that Tenet's repayment of some of its debt using proceeds of convertible preferred stock should help the company keep improving its position. Analysts are also predicting that Tenet will see modest EBITDA growth on operations, courtesy of a variety of small moves to tighten up its ship.

This follows a strong first quarter of 2009, which suggests the company has put some of its troubles behind it. Tenet posted a $178 million profit for the first quarter of this year, compared with a loss of $31 million during the same period last year. Revenue rose 5 percent to $2.28 billion. Since then, Tenet has raised its full-year guidance.

That being said, Moody's also downgraded the ratings on several of Tenet's groups of secured notes, rating its overall probability of default at B3. That leaves much of its debt in the junk-bond investment category, though not at the bottom of the pile. We'll see how shiny its crystal ball is when Q2'09 results are out, won't we?

To learn more about Tenet's latest ratings.
- read this Moody's press release

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