In an effort to fund a part of the acquisition of Amil
Participacoes S.A of Brazil,
UnitedHealth Group Inc.
) has issued bonds worth $2.5 billion. These bonds have been
issued in four tranches of $625 million each, but with varying
coupon rates and maturities.
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While the first tranch will carry a coupon rate of 0.85 % and
will mature in 2015, the second, third and fourth are carrying
coupon rate of 1.4%, 2.75% and 3.95% respectively, and will be
maturing in 2017, 2023, and 2042, respectively. The interest on
these notes will be paid twice a year, with an interval of six
The coupon rate of interest on UnitedHealth's newly issued senior
notes have been fixed higher than the treasury yield of the same
duration. The interest spread is also greater for notes with
The bonds are senior notes in nature and these are carrying
investment grade ratings from the leading rating agencies.
) rated the notes A3 while Standard & Poor's and Fitch have
conferred "A" and "A-" ratings, respectively, on these notes.
The ratings signify that UnitedHealth is capable of meeting its
financial commitments, but is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
Recently, the abovementioned rating agencies also affirmed
ratings on UnitedHealth's existing debt just after it announced
to acquire 90% of Amil Participacoes S.A of Brazil. Moody's
affirmed UnitedHealth's senior debt rating at "A3" but lowered
the outlook to negative from stable, reflecting concerns about
the rise in leverage ratio attributable to the acquisition.
Standard and Poor's maintained its existing rating and outlook.
Also, Fitch Ratings affirmed an "A" rating to the company's
long-term issuer debt rating and the 'A-' to its senior unsecured
securities.It also kept its stable outlook unchanged.
Though the acquisition will raise the debt leverage ratio of
UnitedHealth to 35% from the present 30%, we are confident that
it will gradually come down over time as the company churns out
more cash and pays off its debt.
UnitedHealth currently retains a Zacks #2 Rank, which translates
into a short-term Buy rating. We are also maintaining our
long-term Neutral recommendation on the shares. Its peers
) all retain a Zacks #3 Rank, which translates into a short-term