TEXT - Fitch may still raise Coventry Health Care ratings
Feb 15 - Fitch Ratings said today that the ratings of Coventry Health Care, Inc. (Coventry) remain on Ratings Watch Positive pending the close of Coventry's previously announced acquisition by Aetna Inc. (Aetna). These ratings include the company's long-term Issuer Default Rating (IDR) of 'BBB' and the 'BBB-' ratings on the company's senior unsecured securities. A complete list of affected ratings appears below. Todays' rating actions follow completion of Fitch's review of interim events leading to the acquisition's expected mid-2013 close. Fitch had placed Coventry's ratings on Rating Watch Positive on Aug. 20, 2012 following the company's announcement that it had entered into a definitive agreement to be acquired by Aetna in exchange for Aetna common shares and cash totaling $5.7 billion. Since that time, Coventry shareholders have voted to formally adopt the agreement governing the acquisition, Aetna has issued $2 billion of senior unsecured securities to finance a portion of the acquisition, and Aetna has taken steps required to obtain necessary regulatory approvals. KEY RATING DRIVERS The Positive Rating Watch continues to reflect Fitch's view that following the transaction, the combined entity will benefit from significantly stronger market positioning, larger absolute earnings and revenues bases, and enhanced benefits from economies of scale than Coventry possesses on a stand-alone basis. These expected benefits are partially offset by a projected increase in the combined Aetna-Coventry entity's financial leverage and the possibility of a modest reduction in interest coverage levels relative to Coventry's recently reported levels, depending on the combined operating performance of the two companies going forward. RATING SENSITIVITIES Assuming the acquisition closes as expected, Fitch will most likely upgrade the ratings on Coventry's senior unsecured notes to align them with Aetna's then current ratings. Fitch currently rates Aetna's senior unsecured debt at 'A-', with a Negative Rating Watch. If the acquisition were to fail to close as expected, Fitch would likely remove Coventry's ratings from Rating Watch Positive and leave them at their stand-alone level. Coventry's stand-alone ratings continue to be supported by the company's solid historical operating performance, good cash flow, conservative investment profile and reasonable financial leverage. Coventry's ratings also reflect the effect of very strong competition in the commercial health sector, ongoing risks associated with the implementation of health reform legislation, and continued concerns related to unsustainable medical cost trends. The following ratings remain on Ratings Watch Positive: Coventry Health Care, Inc. --IDR at 'BBB'; --$400 million 6.30% senior unsecured notes due 2014 at 'BBB-'. --$250 million 6.125% senior unsecured notes due 2015 at 'BBB-'; --$400 million 5.95% senior unsecured notes due 2017 at 'BBB-'; --$600 million 5.45% senior unsecured notes due 2021 at 'BBB-'.
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