Even its skeptics doubt we'll see Tenet Healthcare ( THC) filing for Chapter 11 this weekend. Wall Street has been rife with speculation that various sickly companies will be tempted to file for bankruptcy protection before a
strict new law takes effect Monday. The new measure gives companies just 18 months in which management alone can submit a reorganization plan, eliminating extensions that have at times stretched out for years. The law also caps executive bonuses at 10 times the amount offered to regular workers. Tenet, which has been trying to turn its fortunes around for three years and just suffered additional setbacks in the recent Gulf Coast hurricanes, has struck some observers as a prime candidate. But the company's $1.6 billion cash cushion and continued turnaround efforts suggest an immediate filing is unlikely. "The impression I get from all of their news releases and so forth is that they are still fighting the good fight and think that somehow they're going to survive," says Argus Credit Research analyst William Eddleman, who has a sell recommendation on Tenet's bonds. "And the company does have access to the capital markets, which gives them a breather to some extent." Tenet didn't reply to requests for comment. Its stock, a $50 highflier before scandal engulfed the company three years ago, rose 13 cents Friday to $10.04.
This year has brought even more bad news. Tenet has seen four of its remaining hospitals seriously damaged or outright destroyed by Hurricane Katrina. With those losses on top of challenges elsewhere in the company's system, many believe that Tenet continues to get worse instead of better. Even so, Caymus Partners analyst Jeff Villwock doubts a bankruptcy filing is at hand. "This is something we have spent a lot of time thinking about and talking about. ... We have looked at it pretty hard," says Villwock, who has worked with the Tenet Shareholder Committee, a group long critical of management. "But frankly, I think it all depends on things that Tenet knows that we do not know." For one thing, he says, only Tenet can sense whether its negotiations with the government on a multibillion-dollar Medicare fraud case are going well. For another, he says, only Tenet can tell if its efforts to win a high-stakes criminal trial -- now approaching its 90th day in court -- might succeed. And only Tenet can detect whether its hospitals have taken a turn for the better, he says. "If Tenet believes that bankruptcy is nowhere in sight, then this
new law is a moot issue," he concludes. "And I would be willing to bet that is going to be the case."
Today, Cohan finds himself troubled by Tenet's covenants as well. He worries, for example, that Tenet's losses in New Orleans could threaten the coverage ratios mandated under those agreements. Tenet violated one requirement set forth by its lenders earlier this year. The company satisfied that deficiency when filing its latest quarterly report. However, it could have faced serious financial consequences had it failed to do so. "Any way you look at this logically, you've got to say that Tenet ultimately files Chapter 11," insists Eddleman. "I think it is 90% probable. ... I just can't tell you when it's going to happen."