Fitch Ratings assigned its long-term Issuer Default Rating (IDR)
of 'A' on
) and Insurer Financial Strength (IFS) of 'AA-' on its
subsidiaries. The outlook was also stable.
Concurrently, the rating agency also rated the planned issuance of
senior unsecured notes worth $1.75 billion at 'A-'. The outlook is
maintained at stable.
WellPoint issued a debt of $1.75 billion. The debt was issued in
two parts- 3.125% $850 million notes and 4.625% $900 million notes.
The rating agency believes that the proceeds from the debt
issuance, in part, would be used to pay off 6.8% $800 million
senior unsecured notes expected to mature on August 1, 2012. The
proceeds will also be deployed to lower commercial paper
outstanding balance as well as for general corporate purposes.
The ratings came on the back of WellPoint's continued outstanding
performance, solid competitive position and subsidiaries' strong
The ratings reflect higher debt-to-EBITDA ratio compared with the
sector average, competition in the health sector, the probable
risks that may arise during the implementation process of the
health reform legislation and the inconsistent medical costs.
The rating agency noted that WellPoint's financial leverage as of
March 31, 2012 was 1.9x, which is ahead of their expectations and
also more than its peers. Fitch believes that given the expected
usage of the proceeds and operational performance of WellPoint, the
financial leverage would not change much.
Nevertheless, weaker operational performance, which in turn has
the potential to increase the financial leverage, could likely lead
to rating downgrade.
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The ratings are subject to upgrades if the financial leverage is
less than 20% and the interest coverage ratio beyond 12x,
debt/EBITDA lower than 1.0x, run-rate EBIT margins and consolidated
risk based capital (RBC) beyond 10% and 320%, respectively.
On the contrary, the ratings will be downgraded if financial
leverage is more than 35%, EBITDA/interest ratio falls below 7x,
debt/EBITDA ratio is more than 1.9x, run-rate EBIT margins and
consolidated RBC within 6.8% and 220%, respectively.
In a separate development, Standard & Poor's Ratings Services
(S&P) also assigned 'A-' to the senior unsecured debt rating of
WellPoint's proposed debt issuance.
The rating was based on WellPoint's competitive position, steady
earnings growth and sound cash flow, offering ample financial
flexibility. However, its share-repurchase program and an
unimpressive net equity scenario coupled with increasing risk in
the health care industry were negative factors.
The issuance is primarily to pay off a debt maturing in 2012.
S&P believes lowering debt levels will augment the company's
liquidity and financial flexibility. The present liquidity position
includes a cash and investment of $1.8 billion.
The rating agency expects the company's debt-to-capital ratio to be
in the range of 30%-35% by the end of this fiscal with the interest
coverage around 10x. The rating agency also expects WellPoint's
dividend capacity to exceed $2 billion, which will aid the
debt-servicing capacity of the company.
Following another media release, Moody's Investor Service also
rated WellPoint's senior notes at Baa1.
The rating agency also provided (P)A3 rating to the senior debts of
), a prime competitor of WellPoint. The outlook is negative.
), another peer of WellPoint, is also assigned a (P)A3 rating on
its senior notes with a stable outlook.
We retain our long-term Neutral recommendation on WellPoint. The
quantitative Zacks #3 Rank (short-term Hold rating) for the company
indicates no clear directional pressure on the stock over the near