Tenet Lowering Bar on Asset Sales

The smoke is clearing around Tenet's THC fire sale.

For months, Tenet has cautioned that investors should expect only modest cash proceeds from its many planned divestitures. The Santa Barbara, Calif., company plans to whittle its hospital group down by more than a quarter in hopes of returning to profitability in 2006.

But comments on this week's earnings conference call suggest that the struggling chain may be hard-pressed to book even the small sums it has mentioned. If so, the company's cash situation may be more tenuous than investors thought.

To be fair, Tenet's modest cash balance has actually improved since the final quarter of the year. But the company still expects to generate negative cash flow this year and, quite possibly, next. It also faces billions of dollars in potential liabilities.

So Tenet would certainly welcome any extra cash it can get.

The company has targeted proceeds of $600 million from the disposition of 27 hospitals, most of them in California. But Tenet has said only half that sum is likely to be in cash.

Granted, those aren't huge numbers for a company posting cash flow losses in the hundreds of millions, even as quarterly revenue remains well north of $2 billion. Disclosures made Tuesday, though, raise additional questions about Tenet's cash situation.

When questioned during a conference call on Tuesday, Tenet CFO Stephen Farber said that the company has included a big accounts receivable balance -- which it expects to retain and hopes to collect on -- in the asset sale proceeds forecast.

"All of that is basically baked into the general proceeds expectations," Farber confirmed.

The company's latest quarterly report quantifies receivables associated with the planned divestures at $394 million. This figure indicates that Tenet may be relying on accounts receivable collections for all of its cash proceeds -- and that it could wind up with a cash loss of nearly $100 million on the asset sales in the end.