Fitch Plans to Rate WellPoint's New Senior Notes 'BBB+'

Tue Jul 30, 2013 10:57am EDT

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(The following statement was released by the rating agency) CHICAGO, July 30 (Fitch) Fitch Ratings expects to assign a 'BBB+' rating to WellPoint, Inc.'s (WLP) planned issuance of new senior unsecured notes. The 'BBB+' rating is equivalent to Fitch's ratings on WLP's current outstanding senior unsecured notes. Fitch maintains an 'A-' Issuer Default Rating (IDR) on WLP and 'AA-' Insurer Financial Strength (IFS) ratings on various WLP subsidiaries. The Rating Outlook on both the IDR and IFS ratings is Negative. Fitch's expectation is that the notes will be issued with a mix of maturities and that proceeds will be used to fund repurchases of a meaningful amount of comparatively high-coupon outstanding senior unsecured securities and for general corporate purposes. As a result, Fitch believes that WLP's financial leverage metrics are materially unchanged and that the company's interest coverage ratios will improve modestly as a result of the issue. At June 30, 2013, WLP's ratio of debt-to-prior four quarters' aggregate EBITDA was 2.7x and its debt-to-capital excluding unrealized gains on fixed maturities investments was 38%. Through the first half of 2013 the company's operating EBITDA-based interest coverage ratio was 10.5x. WLP's ratings continue to reflect the company's strong competitive positions and large market shares derived in part by the company's status as a Blue Cross/Blue Shield licensee in several key states, generally solid financial performance and comparatively high financial leverage. In 2012, WLP acquired Amerigroup Corporation (AGP) and 1-800 Contacts through transactions that were principally debt-financed. The organization's Negative Outlook primarily reflects uncertainty about WLP's progress in reducing acquisition-related run-rate debt-to-EBITDA and financial leverage ratios (FLR) to levels that Fitch views as commensurate with the organization's current ratings. To a lesser extent, the Negative Outlook reflects risks related to the integration of Amerigroup Corporation and 1-800 Contacts into the WLP organization. Key ratings triggers that would likely result in Fitch revising WLP's and its insurance subsidiaries' Rating Outlook to Stable from Negative include: --Achieving run-rate debt-to-EBITDA ratios and financial leverage ratios of approximately 2.2x and 35%, respectively; --AGP and 1-800 Contacts demonstrating consistently solid financial results and cash flow generation. Key rating triggers that could result in a downgrade of the ratings include: --Run-rate EBITDA margin less than 7%; --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%(company action-level basis; CAL); --A material goodwill impairment. Key rating triggers that could result in upgrades to WLP's IDR and its senior unsecured securities, and affirmations of WLP subsidiaries' IFS ratings 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. Contact: Primary Analyst Mark Rouck Senior Director +1-312-368-2085 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Bradley S. Ellis Director +1-312-368-2089 Committee Chairperson James B. Auden Managing Director +1-312-368-3146 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria and Related Research: --'Insurance Rating Methodology' (Jan. 11, 2013) --'Health Insurance and Managed Care (U.S.) Sector Credit Factors' (Jan. 29, 2013). Applicable Criteria and Related Research: Health Insurance and Managed Care (U.S.) here Insurance Rating Methodology — Amended here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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