Wall Street Ready to Check Tenet's Charts

For Tenet ( THC) investors, an excruciating stay in the waiting room is about to end.

They will learn after the market closes Monday how their company is faring. And they will listen for new clues about whether the company -- ailing now for a year and a half -- can pull through in the end.

After five long months, Tenet is finally set to release new financial statements that will expose the company's condition.

"We believe that the deterioration in the financials is likely worse than expected," cautioned Raymond James analyst John Ransom, who has an underperform rating on Tenet's stock. "We reiterate our view that investors have yet to fully appreciate the magnitude of the company's woes."

Even the "sparse information" provided by Tenet so far has Ransom worried. He is particularly troubled by terms of a new bank loan that triggered fears of a liquidity crisis -- and a huge selloff in the company's shares -- last week. He pointed to recent spikes in Tenet's bond prices as further reason for alarm.

"Notably, the banks were unwilling to extend the line of credit beyond 2006," Ransom wrote on Wednesday. "In addition, the banks took collateral and guarantees from Tenet's subsidiaries and reduced their exposure to the company -- two clear signs of concern."

Michael Scarangella, a high-yield bond analyst at Merrill Lynch, went a step further by identifying just how much Tenet had to pledge for its sharply reduced credit line. Scarangella learned, through discussions with management, that the subsidiaries providing collateral "represent that vast majority of earnings before interest taxes and depreciation generated by the company."

William Eddleman, a high-yield analyst at Argus, has been warning investors off Tenet bonds for months. He described Tenet as a company on "life support" even before the current liquidity scare.

"As the size of this corporation rapidly shrinks, it is legitimate to ask if the smaller corporation can carry its significant debt load, work through its legal problems and survive," he wrote in late January after Tenet announced a huge restructuring plan. "The sale of Tenet debt to preserve capital is prudent."

Still, Scarangella expects Tenet to survive the year without a cash crisis. And he is not alone. Advest analyst Robert Mains sees only a remote chance for liquidity problems this year.

But "there is ... little Tenet can do to convince investors that it will not face a liquidity crisis other than not face a liquidity crisis," noted Mains, who has a neutral rating on the company.

To be sure, Mains expects 2004 to be tough. He thinks Tenet will burn through cash, then access -- and possibly even exhaust -- its credit line this year. But he believes the company could still find access to capital. If necessary, he said, Tenet could issue high-yield debt or execute additional sale-leaseback transactions with real estate investment trusts.

"The company is already a top-five investment for two of the largest health care REITS," Mains explained. "And management of both has indicated an appetite for more Tenet properties."

But Bernstein analyst Ellen Wilson doubts Tenet could land in such a bind. Even her worst-case scenario leaves the company liquid. She says that only a series of unlikely developments could push Tenet over the edge. She believes the company is at risk if it simultaneously burns through an excessive amount of cash -- more than $1.3 million a day -- faces lawsuit and settlement payments this year and loses all access to its revolver before it is drawn.

Still, she stops short of recommending the stock at this point.

"THC does not begin to look really cheap ... until it reaches a stock price of around $6," wrote Wilson, who has a neutral rating on the shares. "As such, the stock is just not cheap enough here to justify taking on the potential downside stock risk."

Tenet's stock tumbled 5.4% on Friday to $9.95 -- after touching a new five-year low -- as investors braced for the scheduled update.

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