Yesterday, rating agency A.M. Best assigned debt ratings to WellPoint Inc.’s (WLP) recently issued long-term unsecured notes worth $1.1 billion. A.M. Best also affirmed the other debt and financial strength ratings of the company.
Accordingly, the rating agency allotted a debt rating “bbb+” to the company’s $400 million 2.375% senior unsecured notes that are due for maturity in 2017 and to its other tranche of $700 million senior unsecured notes, carrying interest of 3.70% and due 2021. The ratings reflect a stable outlook for both the set of notes.
Last week, Fitch Ratings also assigned a debt rating of “A-” to WellPoint’s $1.1 billion senior unsecured notes. The rating agency also avowed the long-term issuer default rating (IDR) of WellPoint at “A,” and the insurer financial strength (IFS) ratings of its operating subsidiaries at “AA-.” All the ratings reflect a stable outlook.
Both A.M. Best and Fitch believe that the proceeds of the $1.1 billion notes will be well-utilized for enhancing the operating leverage of the company. This includes the funding of the working capital requirements along with the repayment of the short- and long-term debt as well as financing the upcoming acquisition of CareMore Health Group.
Post acquisition though, A.M. Best views WellPoint’s debt-to-capital ratio to be about 30%, up from about 27% at the end of the first half of 2011. Besides, the company’s EBIT interest coverage is expected to remain around 9x for 2011, down from 11x at 2010-end. While the given financial metrics reveal some deterioration, these are within A.M. Best’s rating requirements.
Reviewing the company’s performance over 2010 and the first half of 2011, Fitch believes that WellPoint’s debt-to-EBITDA ratio is higher than average for the health and managed care sector. Additional concerns regarding the company include intense competitive pressure in the commercial health sector, ongoing risks related with the implementation of health reform legislation and the persistently weak medical cost trends.
Nevertheless, both the rating agencies have confidence in WellPoint’s healthy operating margin and strong operating cash flows that has been achieved by extending its geographic footprint via all its business segments. Moreover, a stable operating performance and solid statutory capital of WellPoint and its subsidiaries further exhibit their strong market position amid an unfavourable enrollment environment.
Particularly, Fitch opines that the company’s right to use the Blue Cross and Blue Shield (BCBS) brands in 14 states and its ability to access the provider networks of any other BCBS plan across the US further reinforces WellPoint’s competitive strength.
Last week, Standard & Poor's Ratings Services also upgraded the outlook to ‘positive’ from ‘stable’ on Unum Group (UNM) while affirming all its credit and financial strength ratings. Earlier this month, A.M. Best had reassured the credit and financial strength ratings of PartnerRe Ltd. (PRE), reflecting a stable outlook.
The shares of WellPoint closed at $62.05, down 0.4%, at the New York Stock Exchange.
PARTNERRE LTD (PRE): Free Stock Analysis Report
UNUM GROUP (UNM): Free Stock Analysis Report
WELLPOINT INC (WLP): Free Stock Analysis Report
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