TEXT-Fitch rates Wellpoint's senior notes 'BBB+'
Oct 2 - Fitch Ratings has assigned a 'BBB+' rating to WellPoint's
issuance of $1.35 billion in senior unsecured convertible debentures due 2042. The notes are to be issued under Rule 144A of the Securities Act of 1933.
Fitch expects proceeds from the issuance to be combined with existing holding company cash and used for general corporate purposes, including funding a portion of WellPoint's acquisition of Amerigroup Corporation, continuation of the company's share repurchase program and the repayment of existing debt.
WellPoint's ratings continue to be supported by strong and generally stable historical operating performance, very strong competitive position, and solid statutory capitalization of its operating subsidiaries. The ratings also reflect WellPoint's relatively high financial leverage, very strong competition in the commercial health sector, ongoing uncertainty around the ultimate effects of health reform legislation, and continued concerns related to unsustainable medical cost trends.
WellPoint's ratings are currently on Negative Outlook reflecting uncertainty around integration of recent acquisitions, modestly weaker operating performance in recent quarters, and management transition following the recent resignation of WellPoint's chief executive officer.
On Sept. 5, 2012, Fitch downgraded WellPoint's debt ratings upon its issuance of the first round of financing for the Amerigroup transaction, citing a significant deterioration in WellPoint's financial leverage metrics as a result of the new debt. At the same time, Fitch affirmed the ratings of WellPoint's insurance operating subsidiaries.
With approximately 33.5 million medical members, Indianapolis-based WellPoint is the nation's second largest publicly traded health insurance and managed care company. WellPoint reported net income of $1.5 billion in first half-2012 on total revenues of approximately $30.8 billion.
The key rating triggers that could result in Fitch revising WellPoint's Rating Outlook to Stable include substantial progress toward a return of financial leverage metrics to levels appropriate for its ratings (specifically a debt/EBITDA ratio of 2.2x or below) as well as a reduction in the previously discussed uncertainties.
The key rating triggers that could result in an upgrade include: --A material reduction in leverage, specifically expectations for a long-term period of debt/EBITDA below 1.8x; --Debt/total capital below 25% and EBITDA/interest above 10x; --Run-rate EBITDA margins in excess of 9%; --Run-rate consolidated RBC ratio in excess of 300% of CAL. Conversely, key rating triggers that could result in a downgrade include: --Run-rate EBITDA margin less than 6%; --Run-rate EBITDA/interest of less than 7x; --Run-rate debt/EBITDA ratio in excess of 2.2x and debt-to-total capital in excess of 38%; --Run-rate consolidated RBC ratio of less than 220% of CAL.
Fitch assigns the following rating:
WellPoint, Inc. --Senior convertible debentures due 2042 at 'BBB+'.
Additional information is available at '
'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research: --'Insurance Rating Methodology' (Sept. 19, 2012); --'Health Insurance and Managed Care (U.S.) Sector Credit Factors' (August 21, 2012); --'WellPoint, Inc. (And Operating Subsidiaries)' (Feb. 28, 2012); --'2012 Outlook: U.S. Health Insurance and Managed Care' (Dec. 14, 2011); --'WellPoint, Inc.' (Sept. 6, 2011). Applicable Criteria and Related Research: Insurance Rating Methodology Health Insurance and Managed Care (U.S.) Sector Credit Factors WellPoint, Inc. 2012 Outlook: U.S. Health Insurance and Managed Care WellPoint, Inc. (And Operating Subsidiaries) (New York Ratings Team)