CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has downgraded WellPoint, Inc.'s (WellPoint) Long-Term Issuer Default (IDR) to 'A-' and its issue ratings to 'BBB+'. In addition, the agency has assigned WellPoint's planned issuance of senior unsecured notes a 'BBB+(EXP)' expected rating and affirmed the Insurer Financial Strength (IFS) ratings of WellPoint's operating subsidiaries at 'AA-' The Outlook on the IDR and IFS ratings is Negative. A full list of rating actions is below.
The downgrades of the IDR and issue ratings reflect a significant deterioration in WellPoint's financial leverage metrics resulting from the issuance of debt related to the company's acquisition of Amerigroup Corporation (AGP). Fitch expects WellPoint to fund the majority of the USD5bn purchase price with new debt.
The affirmation of the IFS ratings reflects non-standard notching between the operating company subsidiaries' IFS ratings and the parent company's IDR. Fitch views this as appropriate as it believes the operating company subsidiaries will continue to be able to meet their ongoing funding needs and maintain their current capitalization metrics, without assistance from the parent company.
The current Negative Outlook on the ratings reflects uncertainty around integration of recent acquisitions, the effect of modestly weaker operating performance in recent quarters, and management transition following the recent resignation of the company's chief executive officer.
WellPoint's ratings continue to be supported by the company's strong and generally stable historical operating performance, very strong competitive position, and good statutory capitalization of its operating subsidiaries. Additionally, the IFS ratings of several WellPoint subsidiaries benefit from a parent company guaranty.
The company's ratings also reflect very strong competition in the commercial health sector, ongoing uncertainty around the effects of health reform legislation, and continued concerns related to unsustainable medical cost trends.
Fitch views the acquisition of AGP as strategically beneficial for WellPoint, given the additional expertise and access AGP will provide WellPoint with, in terms of Medicaid beneficiaries in the 12 states in which it operates. The deal will also place WellPoint in a better position to benefit from the growing number of dual-eligible beneficiaries who are being enrolled in private health plans.
With approximately 33.5 million medical members, Indianapolis-based WellPoint is the nation's second largest publicly traded health insurance and managed care company. The company reported net income of USD1.5bn in H112 on total revenues of approximately USD30.8bn.
The key rating triggers that could result in a revision of the Outlook to Stable include substantial progress toward a return of financial leverage metrics to levels appropriate for WellPoint's new 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.
The key rating triggers that could result in a downgrade include:
--Run-rate EBIT 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.
The rating actions are as follows:
The following rating has been assigned:
--New senior notes 'BBB+'
The following ratings have been removed from Rating Watch Negative and downgraded:
--6.800% senior notes due 2012 to 'BBB+' from 'A-'
--5.000% senior notes due 2014 to 'BBB+' from 'A-'
--6.000% senior notes due 2014 to 'BBB+' from 'A-'
--5.250% senior notes due 2016 to 'BBB+' from 'A-'
--5.875% senior notes due 2017 to 'BBB+' from 'A-'
--2.375% senior notes due 2017 to 'BBB+' from 'A-'
--7.000% senior notes due 2019 to 'BBB+' from 'A-'
--4.350% senior notes due 2020 to 'BBB+' from 'A-'
--3.700% senior notes due 2021 to 'BBB+' from 'A-'
--3.125% senior notes due 2022 to 'BBB+' from 'A-'
--5.950% senior notes due 2034 to 'BBB+' from 'A-'
--5.850% senior notes due 2036 to 'BBB+' from 'A-'
--6.375% senior notes due 2037 to 'BBB+' from 'A-'
--5.800% senior notes due 2040 to 'BBB+' from 'A-'
--4.625% senior notes due 2042 to 'BBB+' from 'A-'
--Short-term IDR to 'F2' from 'F1'
--Commercial paper to 'F2' from 'F1'
--Long-term IDR to 'A-' from 'A'; Negative Outlook
Anthem Holding Corp. (formerly known as WellPoint Health Networks Inc.)
The following ratings have been affirmed with a Negative Outlook:
Anthem Insurance Companies, Inc.
--Long-term IDR at 'A+';
--9.00% surplus notes due 2027 at 'A'
--Insurer financial strength (IFS) at 'AA-'
The IFS ratings of the following issuers have been affirmed at 'AA-', with a Negative Outlook:
Blue Cross of California
Anthem Blue Cross Life & Health Insurance Company
Blue Cross and Blue Shield of Georgia, Inc.
Blue Cross Blue Shield Healthcare Plan of Georgia, Inc.
HMO Missouri, Inc.
Empire HealthChoice HMO, Inc.
Empire HealthChoice Assurance, Inc.
Anthem Health Plans, Inc.
Anthem Health Plans of Kentucky, Inc.
Anthem Health Plans of Maine, Inc.
Anthem Health Plans of New Hampshire, Inc.
Anthem Health Plans of Virginia, Inc.
Community Insurance Company, Inc.
Matthew Thornton Health Plan, Inc.
Rocky Mountain Hospital & Medical Service, Inc.
Healthy Alliance Life Insurance Company
Additional information is available at 'www.fitchratings.com'. 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:
--'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);
--'Insurance Rating Methodology' (Sept. 22, 2011);
--'WellPoint, Inc.' (Sept. 6, 2011).
Insurance Rating Methodology
WellPoint, Inc. (And Operating Subsidiaries)
Health Insurance and Managed Care (U.S.) Sector Credit Factors
2012 Outlook: U.S. Health Insurance and Managed Care
Bradley S. Ellis, CFA, +1-312-368-2089
70 W. Madison St.
Chicago, IL 60602
Mark E. Rouck, CPA, CFA, +1-312-368-2085
James B. Auden, CFA, +1-312-368-3146
Brian Bertsch, +1-212-908-0549
Source: Fitch Ratings