Jan 15 - Fitch Ratings has affirmed WellPoint, Inc.'s (WellPoint)
long-term Issuer Default Rating (IDR) at 'A-' and its issue ratings at 'BBB+'.
In addition, Fitch has 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 affirmation of WellPoint's ratings reflects the company's strong and
generally stable historical operating performance, very strong competitive
position, and solid statutory capitalization of its operating subsidiaries.
Additionally, the IFS ratings of several WellPoint subsidiaries benefit from a
parent company guaranty.
The ratings also reflect the company's high financial leverage metrics resulting
from the issuance of debt related to the company's recent acquisition of
Amerigroup Corporation (AGP), which was completed on Dec. 24, 2012, 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.
The current Negative Outlook on the ratings reflects uncertainty around the
integration of AGP, including unforeseen challenges which may unfavorably affect
future operating performance. The Negative Outlook also reflects uncertainty
regarding progress in reducing the company's financial leverage and management
transition following the resignation of the company's chief executive officer in
WellPoint's ratings reflect 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.
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. AGP's
operations will also place WellPoint in a better position to benefit from the
growing number of dual-eligible beneficiaries who are being enrolled in private
Fitch anticipates a gradual reduction in WellPoint's financial leverage over the
next 12 to 24 months to levels that are more consistent with its current
ratings. This leverage reduction will likely result from a combination of debt
reduction and a strengthening of the company's EBITDA. Including $1.5 billion in
senior unsecured convertible debentures issued in October 2012, Fitch estimates
WLP's pro forma 2012 debt-to-EBITDA ratio, including AGP, to be approximately
2.5x, and debt-to-total capital to be approximately 37%.
WellPoint's strong cash flow provides management with significant flexibility in
managing financial leverage through an appropriate balance between stock
repurchase activity and debt reduction activity. A track record of management's
willingness to employ these levers to maintain appropriate alignment of the
company's debt load with its cash flow has historically enhanced Fitch's comfort
with its use of financial leverage. A reduction in management's willingness
and/or ability to maintain this balance would likely result in a downgrade of
the company's ratings.
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 $2.2 billion in the first nine
months of 2012 on total revenues of approximately $46.2 billion.
KEY RATING DRIVERS
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
The key rating triggers that could result in standard notching between the
operating company subsidiaries' IFS ratings and the parent company's IDR
--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 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% of CAL
--A material goodwill impairment.
The rating actions are as follows:
Fitch has affirmed the following ratings:
--5.000% senior notes due 2014 at 'BBB+';
--6.000% senior notes due 2014 at 'BBB+';
--1.250% senior notes due 2015 at 'BBB+';
--5.250% senior notes due 2016 at 'BBB+';
--5.875% senior notes due 2017 at 'BBB+';
--2.375% senior notes due 2017 at 'BBB+';
--1.875% senior notes due 2018 at 'BBB+';
--7.000% senior notes due 2019 at 'BBB+';
--4.350% senior notes due 2020 at 'BBB+';
--3.700% senior notes due 2021 at 'BBB+';
--3.125% senior notes due 2022 at 'BBB+';
--3.300% senior notes due 2023 at 'BBB+';
--5.950% senior notes due 2034 at 'BBB+';
--5.850% senior notes due 2036 at 'BBB+';
--6.375% senior notes due 2037 at 'BBB+';
--5.800% senior notes due 2040 at 'BBB+';
--4.625% senior notes due 2042 at 'BBB+';
--4.650% senior notes due 2043 at 'BBB+';
--2.750% Senior convertible debentures due 2042 at 'BBB+';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.
--Long-term IDR at 'A-'; Negative Outlook.
Anthem Holding Corp. (formerly known as WellPoint Health Networks Inc.)
--Long-term IDR at 'A-'; Negative Outlook.
Fitch has affirmed the following ratings 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-'.
Fitch has affirmed the IFS ratings of the following issuers at 'AA-', with a
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