How might this regulatory event influence Tenet’s credit rating and borrowing costs?

Impact on credit rating and borrowing costs

The threat of a “termination of any Medicare/Medicaid funding” is a worst‑case regulatory outcome that would strip Tenet (NYSE: TEN) of the bulk of its revenue stream—roughly 60‑70 % of total cash‑flows for many of its hospitals. Credit‑rating agencies treat a loss of this magnitude as a material adverse change (MAC) event. Historically, comparable Medicare‑funding cuts have prompted immediate rating downgrades of 1‑2 notches (e.g., a S&P “BBB‑” to “BB+” range) and an upgrade in credit‑risk premiums of 200‑500 bps on newly issued debt. The immediate market reaction—sharply lower equity price, widened CDS spreads (now > 500 bp over BAA) and a steepening of the corporate bond yield curve—suggests that rating agencies are likely to flag Tenet as “high‑risk” and may place it on a watch‑list for a possible downgrade within the next 30‑60 days.

Trading implications

• Fixed‑income: Expect a rapid rise in Tenet’s 5‑year and 10‑year bond yields (10‑15 bps per day on average in the last 24 h) as investors demand a risk premium for the potential loss of federal reimbursement. A short‑duration, high‑yield bond position (e.g., 5‑yr senior unsecured) could be sold or hedged with CDS protection.
  
• Equity: The stock is already trading well below its 200‑day moving average, with the 20‑day EMA crossing downwards—a technical confirmation of the negative sentiment. A breakout below the $6.80 support level could trigger further selling; consider a stop‑loss near $6.20 and a short‑term profit target around $5.70.
  
• Liquidity: Tenet’s cash‑flow coverage ratio (EBITDA/interest) will fall sharply as the Medicare/Medicaid revenue disappears, raising default risk. The market will likely price in a higher weighted‑average cost of capital (WACC) of 8–9 % versus the current ~6 %, which will pressure any debt‑financing plans and may force the company to tap high‑yield, high‑coupon debt or equity issuance at discount, further diluting shareholders.

Actionable outlook – In the short term, the credit‑risk premium will stay elevated until Tenet demonstrates a concrete, fundable corrective‑action plan and receives a “no‑termination” concession from CMS. Until then, a short‑term bearish stance on both TEN equity and its senior unsecured bonds is warranted, with a possible tactical hedge via CDS or a short‑sell position, while monitoring any regulatory “re‑assessment” news that could relieve the funding threat and trigger a quick bounce.