Credit ratings agency Fitch ratings has affirmed its long-term
issuer default rating (IDR) and issue ratings on
). The rating agency provided IDR of "A-"and issue ratings of
"BBB+". It has also confirmed the insurer financial strength
(IFS) ratings of "AA-" to the operating units of WellPoint.
However, both IDR and IFS ratings carry a negative outlook.
The ratings came on the back of factors like WellPoint's steady
performance, its competitive position in the market and strong
capitalization of its subsidiaries. Moreover, Fitch remained
optimistic about WellPoint's AGP acquisition as it would reap
benefits from the company's burgeoning dual-eligible
beneficiaries under the private health plans and Medicaid
beneficiaries in 12 states.
Nevertheless, debt issued to fund the purchase of
) in December 24, 2012, has increased the financial leverages of
the company. The ratings agency is also concerned about the huge
competition faced within the commercial health sector, adverse
implications of health reforms and fluctuating medical costs.
Additionally, with the incorporation of AGP in its business the
company might face a few challenges which may have a further
adverse effect on the operating performance of the company.
Moreover, instability in top management leaves uncertainty
regarding the company's financial leverage. All these factors are
reflected by the negative outlook on the ratings.
Considering the fact that the subsidiaries of WellPoint are self
sufficient for their funding requirements and maintain
their capitalization metrics, Fitch's ratings reflect the
differences between the IFS rating provided to the subsidiaries
and the IDR rating provided to the parent company.
Going ahead Fitch expects WellPoint's financial leverage to
decrease over a period of 1-2 years due to reduction in debt and
improved earnings. Fitch estimates the proforma 2012
debt-to-EBITDA ratio, including AGP to be about 2.5x and
debt-to-total capital to be approximately 37%. This includes the
$1.5 billion in senior unsecured convertible debentures issued in
The strong cash flow of WellPoint allows it to maintain a balance
between the share buybacks and deleveraging actions and hence
control its financial leverage. It also stated that the rating is
susceptible to a downgrade if management fails to maintain this
balance. Fitch declared that if there is a reduction in
WellPoint's debt-to-EBITDA ratio of 2.2x or below and the other
uncertainties also reduce, the outlook could be revised to
Earlier in September 2012, ratings agencies, A.M. Best Co.,
Standard & Poor's Ratings Services (S&P) and Moody's
Investor Services of
) had assigned debt ratings to the then issued senior unsecured
notes of WellPoint. While Moody's had assigned a "Baa2" rating to
the notes with a stable outlook, S&P rated these with an
"A-". Additionally, A.M. Best had rated the notes "bbb+" and
placed these under review with negative implications.
WellPoint currently carries a Zacks Rank #2 (Buy).
(AGP): ETF Research Reports
MOODYS CORP (MCO): Free Stock Analysis Report
WELLPOINT INC (WLP): Free Stock Analysis
To read this article on Zacks.com click here.