Major shareholder wants more frequent oversight of Tenet’s board: 5 things to know

https://www.beckershospitalreview.com/finance/major-shareholder-wants-more-frequent-oversight-of-tenet-s-board-4-things-to-know.html

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Glenview Capital Management, which currently owns 17.8 percent of Dallas-based Tenet Healthcare, has submitted a proposal to Tenet that would amend the for-profit hospital operator’s bylaws to allow all shareholders to take action by written consent without a meeting.

Here are five things to know about Glenview’s proposal, which will be voted on at Tenet’s annual meeting.

1. In a letter to Tenet shareholders, Glenview said Tenet has been a “chronically underperforming company for decades,” and shareholders need the ability to take action by written consent.

“Just as a person in worsening health may need more frequent medical attention than a check-up once every 12-18 months, a chronically unhealthy company is likely to return to health quicker and with more certainty if its owners are allowed more frequent board oversight, and this is effectively accomplished through the ability to take action by written consent,” Glenview wrote in the letter to shareholders.

2. In addition to Tenet’s financial underperformance, Glenview said there are several other factors supporting the proposed change, including the board’s slow response to Tenet’s financial and operational challenges.

3. Although Tenet’s board approved amendments to the company’s bylaws in January that allow majority shareholders to request special meetings, Glenview argued shareholders still need action by written consent.

Glenview said the amendment to allow majority shareholders to call special meetings is “wholly impractical, clearly off-market, and sends a dangerous signal that the board may need additional feedback from shareholders to fully appreciate the cultural renaissance for which we mutually strive.”

4. Tenet said it is reviewing Glenview’s proposal. “We will make a recommendation to shareholders in due course,” Tenet said in a statement.

5. Tenet launched a $250 million cost reduction initiative last year, which involves divesting hospitals in non-core markets and cutting 2,000 jobs, or about 2 percent of the company’s workforce. The for-profit hospital operator ended the third quarter of 2017 with a net loss of $367 million on revenues of $4.59 billion. That’s compared to the same period of 2016, when the company recorded a net loss of $8 million on revenues of $4.85 billion.

These Hospital Bonds Are on Life Support

https://www.bloomberg.com/gadfly/articles/2017-10-27/a-49-billion-hospital-emergency-heads-toward-junk-bonds

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Junk-bond buyers appear to have a blind spot when it comes to for-profit health care companies.

They’ve snapped up bonds of Tenet Healthcare Corp. and Community Health Systems Inc. despite the drastically souring outlook for both hospital operators. Some of this may be idiosyncratic or the result of specific investors’ strategies (or unwillingness to sell). Franklin Resources Inc., for example, now owns nearly 20 percent of Community Health’s total debt and more than half of its $1.9 billion of bonds maturing in 2019, according to recent filings compiled by Bloomberg.

In general, however, as credit investors plow into broad indexes of riskier assets, it appears they’re simply turning a blind eye to the ugly balance sheets of hospital operators amid an increasingly difficult backdrop. Federal programs like Medicaid are clamping down on costs. And the Trump administration’s various efforts to weaken the individual insurance market will potentially put hospitals on the hook for more uncompensated care as fewer people sign up for health care coverage.

Meanwhile, Tenet and Community Health made some questionable decisions in recent years to borrow billions of dollars to make acquisitions that now look pricey. These companies don’t generate a ton of cash at the best of times, and much of what they do have now goes to debt service rather than much needed hospital improvements.

CIRCLING THE DRAIN

It’s hard for companies to confront mountainous piles of debt when they don’t generate consistent cash flow.

These hospital operators have a narrowing field of options right now. Tenet recently tried, and failed, to sell itself, which sent its shares plunging on Thursday. Both hospitals report earnings within the next few weeks. If HCA Healthcare is any guide — the company pre-announced worse-than-expected third-quarter earnings last week — they won’t be pretty.

But still, no one in the bond market seems to care. Tenet’s bonds have soared 7.8 percent so far this year, even though its stock has fallen 13.3 percent. Community Health debt has gained 16.5 percent, four times the 4.1 percent gain in its shares.

DIVERGING FATES

Bond investors seem to be turning a blind eye to difficulties recognized by stock investors

This seems sort of ludicrous. One hedge fund manager, Boaz Weinstein of Saba Capital Management, sees this as an opportunity to short some of these companies’ junior bonds. Weinstein pointed out at a conference this month that Community Health’s $14 billion pile of debt is 20 times the value of its equity.

Unless the company’s fortunes turn around, it will be forced to reckon with its debt in painful ways for its business as well as the returns of creditors. It’s hard to see how the business could get better with President Donald Trump’s continuing attempts to torpedo health care insurance subsidies, which is widely expected to hurt hospital profitability.

Credit investors at some point are going to have to come to grips with this. Community Health and Tenet, along with HCA, account for $49 billion of debt in a broad U.S. high-yield bond index. This pile is looking increasingly vulnerable to a day of reckoning.

Tenet to close 232-bed Phoenix hospital

https://www.beckershospitalreview.com/finance/tenet-to-close-232-bed-phoenix-hospital.html

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Dallas-based Tenet Healthcare will close Abrazo Maryvale Campus, a 232-bed hospital in Phoenix, by the end of the year.

The hospital is closing primarily because of dwindling patient volumes, said Frank Molinaro, market CEO for Abrazo Community Health Network, which encompasses six acute care hospitals.

“Over the past several years Abrazo Maryvale has experienced a significant decline in community demand for its services,” said Mr. Molinaro. “The Abrazo Community Health Network’s top priority is delivering high-quality, cost-effective care to residents of the greater Phoenix area, and we are properly allocating our resources to meet our patients’ and our communities’ healthcare needs.”

Although the hospital will remain open until Dec. 18, it will no longer admit patients after Dec. 1. “We will assist patients and their physicians in transitioning their care to other Abrazo Network facilities or the healthcare provider of their choice,” said Mr. Molinaro.

Officials said the closure of Abrazo Maryvale should not impact the community’s access to care, as there are four acute care hospitals and 11 urgent care centers within the 6-mile area surrounding Abrazo Maryvale.

The closure of the hospital will affect around 300 employees. All Abrazo Maryvale employees who are in good standing will receive priority for open positions within Abrazo Community Health Network and its affiliated partners, said Mr. Molinaro.

Tenet, Abrazo Maryvale’s parent company, is exploring a number of strategic options, including the sale of assets, divisions or the entire company. The 77-hospital chain ended the second quarter of this year with a net loss of $56 million, compared to a net loss of $44 million in the same period of the year prior. Tenet will release its earnings for the third quarter in November.

Hospital stocks sink after HCA’s earnings stumble

http://www.beckershospitalreview.com/finance/hospital-stocks-sink-after-hca-s-earnings-stumble.html

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Major for-profit hospital operators saw their share prices fall Tuesday after Nashville, Tenn.-based HCA Healthcare released its earnings for the second quarter, which fell below analysts’ estimates, according to Bloomberg.

HCA’s revenues increased 4 percent year over year to $10.73 billion in the second quarter of 2017, which fell below analysts’ estimate of $10.85 billion. The company ended the second quarter of this year with net income of $657 million, which was down slightly from $658 million in the same period of 2016.

After releasing its earnings, HCA shares fell 2.5 percent to $83.93. Dallas-based Tenet Healthcare shares dropped 7.3 percent to $19.57 and Franklin, Tenn.-based Community Health Systems shares fell 7.4 percent to $8.96, according to Bloomberg.