Well Running Dry at Tenet

Big names in the once-robust hospital sector are getting some poor marks on their regular checkups.

Ailing Tenet (THC) found Tuesday that its liquidity had deteriorated significantly in just a matter of weeks. Meanwhile, Health Management Associates (HMA) saw its health questioned once again by the same Wall Street analyst who first diagnosed Tenet's problems.

Tenet said it negotiated a new, but significantly smaller, credit facility with its bankers. The bleeding hospital chain, hit hard by allegations of fraud and the closure of a Medicare loophole, said its new credit agreement offers more flexibility -- but less cash -- than the old one it expected to violate. In order to relax its leverage ratios, Tenet agreed to pledge collateral for a credit facility that's been cut by one-third. The company now has access to $800 million, rather than $1.2 billion, in available credit support. But it can tap just $500 million of that for cash needs.

Peter Young, a business consultant who serves the hospital industry, compared Tenet's new arrangements to "debtor-in-possession" financing.

"Does the new agreement provide adequate capital access for a future?" Young pondered. That's "an interesting question. But the answer appears [to be], 'Not for a company of the current size.'"

Even Jeff Villwock -- a Caymus Partners analyst who warned months ago about a possible liquidity crisis -- expressed mild surprise at terms of the deal.

"We expected the banks to reduce cash borrowing from $1 billion to $800 million," said Villwock, who's been analyzing the company for years on behalf of the Tenet Shareholder Committee. "Apparently, they were not comfortable [with Tenet's financial condition], and took it down to $500 million. ... That's a big decline."

The company's own cash pile continues to melt away as well. Its current balance of $425 million is down from $600 million just six weeks ago. As a result, it now has access to less than $1 billion in cash total.