Centene Corporation (CNC)

CNC 
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Centene Corporation (CNC)

Citi Global Healthcare Conference

February 26, 2013 11:00 AM ET

Executives

Ed Kroll - SVP and IR

Analysts

Presentation

Unidentified Analyst

Up on stage with me is Ed Kroll, Senior Vice President and Investor Relations at Centene. so we do have a microphone in the audience for when questions come up, but starting with the number one question that I get from people these days on Centene is, when are they going to risk capital and yes I think you did take on the $150 million in debt not that long ago but seems like that basically just went straight to Kentucky to Beckville there. So I guess get the first question around that would be, what do you think is a reasonable debt to capital ratio? So if I look at sort of 40% the norm and that would translate to sort of 100 million in incremental debt that you could take on, is 40 the cap or would you be willing to go above that?

Ed Kroll

And thanks for having us here Carl. We appreciate all the work you do on our stock and in this space. At 12.31 we were just under 33% if you exclude the building loan which is like a mortgage, its nonrecourse, our second headquarters power is nonrecourse to Centene. So you if exclude that, it’s just under 33% and I think it can go higher from there and we do have a pending acquisition that we’re doing of carrier health, a specialty pharma company that we will be paying for about 60% of that with stock, Centene’s stock.

So I think from a debt to cap standpoint, that will bring it down slightly a little bit, and I think we’re comfortable with the strength of our balance sheet. The transaction you mentioned from November where we increased the size of the senior note offering that brought the revolver down to zero and that as a $350 million revolver, it’s expandable to $400 million, so we’ve got that available to us. And we will manage the balance sheet as we always have. We’ll do it very efficiently, appropriately, always with our shareholders' best interest in mind. So I think we’ve got some room to go, I don't want to put a number out there specifically, but I think we've certainly got the ability to tap the revolver and some room to move up on the debt to capital where we ended 2012.

Unidentified Analyst

So when you think about it internally, then you think about our debt to capital as 33% as opposed to 37% without the non-recourse loan?

Ed Kroll

Yes we do, and in our press releases, all of them, not the latest one of course for the fourth quarter we disclose it both ways with and without the non-recourse loan, of course. The other thing to keep in mind, we have had some good internal cash flow generation over the last couple of years and 2013 should be no different, and so that will certainly be helpful for this whole process as the year unfolds as well.

Unidentified analyst

So, you mentioned you'd be using $90 million in stock to pay for Acaria. Is that stock is going straight to their shareholders, or is that stock you're going to issue to the market and then use cash to…

Ed Kroll

Yes, that will go the current owners of Acaria.

Unidentified analyst

In Kentucky Wellcare, Coventry I should say and Wellcare just announced big rate increases, you guys haven't said anything, so is that your penance for leaving early and doing the state or are you working on something?

Ed Kroll

I guess all I can say on that, there are some, certainly some legal issues pending there we announced last year that our intention to exit the state and we're continuing to proceed down that path. We booked a premium deficiency reserve that had about $42 million left on it at 12.31 so I think we're just proceeding as we have been and I'll just leave it at that. Our view was that the program had some serious flaws and it was unsustainable situation for us and we took appropriate action.

Unidentified analyst

So in the scenario where you've got to stay in Kentucky beyond July for whatever reason, would the current thinking be, essentially we just take another charge for however long if we had to stay in another quarter beyond July, we just take a charge to account for that?

Ed Kroll

Well, first let me say we feel like our position is, to our contract that we signed with the state that we do have the ability to exit on July 5, and so we're confident in our ability to do that. If, or I should say more broadly, at any point in time, one would look at the operating issues in a market like Kentucky such as we did increase the premium deficiency reserve during the fourth quarter of 2012 because that’s what the formulaic, the calculation told us we should do so I suppose and again, we're very confident in our ability to exit on July 5th. If for some reason we were found ourselves in the market beyond that date, we would reevaluate what we’ve got, sitting on the balance sheet in terms of the premium deficiency reserve there.

Unidentified Analyst

And can you just walk us through the milestones that we should think about in Kentucky in terms of the major events between say now and July?

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