Tenet To Sell 4 California Hospitals To UCI Health For $975M

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Dive Brief:

• Major U.S. health system Tenet Healthcare has agreed to sell four Southern California hospitals for about $975 million to California-based academic health system UCI Health.
• The sale is part of an ongoing effort to reduce the company’s leverage, according to the deal announcement. The Dallas-based for-profit provider carried $14.9 billion in debt as of the third quarter of 2023, with $4.4 billion of liabilities due in 2024 and $18 billion due in subsequent years.
• Tenet has already made sales to generate funds for debt repayment. This morning, the health system closed on its November deal to sell three South Carolina hospitals to Winston Salem, North Carolina-based Novant Health for $2.4 billion dollars. 

Dive Insight:

Should the Tenet-UCI Health deal close this spring, Tenet will net approximately $800 million in post-tax earnings, according to the announcement.

UCI will assume operations of Fountain Valley Regional Hospital, Lakewood Regional Medical Center, Los Alamitos Medical and Placentia-Linda Hospital. Tenet will provide revenue cycle management services through the transition.

The hospitals generated approximately $1 billion in revenue and $71 million in adjusted earnings before interest, taxes, depreciation and amortization in 2023, according to Tenet. 

Though Tenet’s debt levels have stayed relatively flat over the past two years, unfavorable operating conditions, including inflationary pressures and uneven demand for services after the COVID-19 pandemic, have negatively impacted the company’s operating margins and levels of cash on hand — which reflect Tenet’s relative ability to honor its debts.

For the nine months ending Sept. 30, Tenet carried $1.1 billion of cash on hand — a decline of 12.8% year over year.

Executives hinted on 2023 earnings calls that Tenet might have reason to divest from its California portfolio.

On a second quarter earnings call, Daniel Cancelmi, Tenet’s former chief financial officer and executive vice president who retired at the close of 2023, said the California market had been “slower to open” relative to Florida and Texas. During the third quarter call, he twice cited the new $25 minimum wage for healthcare workers as a potential headwind for the company.

The company will deliver its next quarterly financial report on Feb. 8. Though the earnings release is not yet finalized, the company said on Thursday that it expects it will exceed the high end of its fiscal year adjusted EBITDA outlook range included in its third quarter 2023 earnings release.