Fitch Expects to Rate Aetna Inc.'s Sr Unsecured Notes 'A-'

Tue Mar 4, 2014 12:07pm EST

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(The following statement was released by the rating agency) CHICAGO, March 04 (Fitch) Fitch Ratings has assigned an expected rating of 'A-' to Aetna Inc.'s (AET) proposed issuance of $750 million of senior unsecured notes. AET's Long-term Issuer Default Rating is unaffected by this rating action. Fitch affirmed the ratings of AET and its insurance operating subsidiaries with a Negative Outlook on Nov. 27, 2013. KEY RATING DRIVERS Fitch expects proceeds from the issuance to be used to fund the recently announced redemption of AET's $750 million of 6.00% senior notes due June 2016. Aetna's financial leverage has risen significantly over the past year as a result of its acquisition of Coventry Health Care, Inc. (CVH) in May 2013. At Dec. 31, 2013, the company's financial leverage was approximately 38%, and debt-to-EBITDA was 2.1x for the 12 months ended Dec. 31, 2013. This is up from 33% and 1.3x, respectively, at June 30, 2012. The company's elevated financial leverage and execution risk related to the CVH transaction are the primary drivers of the Negative Outlook on Aetna's ratings. Fitch expects financial leverage and run-rate debt-to-EBITDA to move below 35% and 1.8x, respectively, by the end of the second quarter of 2015. Aetna's ratings reflect the organization's major market position and significant size and scale, strong profitability and interest coverage, and generally solid balance sheet characteristics. The company's ratings also reflect the risks derived from government involvement in health insurance and managed care companies' ongoing business activities. Fitch's long-held concern is that government efforts to advance public policy goals could adversely affect health insurance and managed care companies' ability to manage their business and hinder their ability to generate cash flow supporting debt obligations. RATING SENSITIVITIES 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 within guidelines for the company's ratings, specifically a debt-to-EBITDA ratio of 1.8x or below and financial leverage ratio of 35% or lower. The key rating triggers that could lead Fitch to downgrade the ratings include run-rate: --Debt-to-EBITDA ratios that exceed 1.8x; --Debt-to-capital ratios that exceed 35%; --EBITDA-to-revenue margins less than 7%; --EBITDA-based interest coverage ratios less than 10x or maximum allowable dividend interest expense coverage below 5x; --Organization-wide run-rate Fitch-adjusted NAIC risk-based capital (RBC) ratios below 275%. Fitch expects to assign the following rating: Aetna Inc. --$750 million senior unsecured notes 'A-'. Contact: Primary Analyst Bradley S. Ellis, CFA Director +1-312-368-2089 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Mark E. Rouck, CPA, CFA Senior Director +1-312-368-2085 Committee Chairperson James B. Auden, CFA 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' (Nov. 13, 2013); --'Health Insurance and Managed Care (U.S.) Sector Credit Factors' (Dec. 18, 2013); --'2013 Outlook Report: U.S. Health Insurance and Managed Care' (Dec. 10, 2013). Applicable Criteria and Related Research: 2013 Outlook Report: U.S. Health Insurance and Managed Care here Health Insurance and Managed Care (U.S.) here Insurance Rating Methodology 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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