Fitch Ratings has affirmed WellPoint, Inc.'s long-term Issuer Default Rating at A- and its issue ratings at BBB+.
In addition, Fitch has affirmed the Insurer Financial Strength ratings of WellPoint's operating subsidiaries at AA-. The Outlook on the IDR and IFS ratings is Negative.
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 Corp., which was completed on Dec. 24, 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 August 2012.
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 health plans.
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 percent.
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 uncertainties.
The key rating triggers that could result in standard notching between the operating company subsidiaries' IFS ratings and the parent company's IDR include:
--A material reduction in leverage, specifically expectations for a long-term period of debt/EBITDA below 1.8x;
--Debt/total capital below 25 percent and EBITDA/interest above 10x;
--Run-rate EBITDA margins in excess of 9 percent;
--Run-rate consolidated RBC ratio in excess of 300 percent of CAL.
The key rating triggers that could result in a downgrade include:
--Run-rate EBITDA margin less than 7 percent;
--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 percent;
--Run-rate consolidated RBC ratio of less than 220 percent of CAL
--A material goodwill impairment.
The rating actions are as follows:
Fitch has affirmed the following ratings:
--5.000 percent senior notes due 2014 at BBB+;
--6.000 percent senior notes due 2014 at BBB+;
--1.250 percent senior notes due 2015 at BBB+;
--5.250 percent senior notes due 2016 at BBB+;
--5.875 percent senior notes due 2017 at BBB+;
--2.375 percent senior notes due 2017 at BBB+;
--1.875 percent senior notes due 2018 at BBB+;
--7.000 percent senior notes due 2019 at BBB+;
--4.350 percent senior notes due 2020 at BBB+;
--3.700 percent senior notes due 2021 at BBB+;
--3.125 percent senior notes due 2022 at BBB+;
--3.300 percent senior notes due 2023 at BBB+;
--5.950 percent senior notes due 2034 at BBB+;
--5.850 percent senior notes due 2036 at BBB+;
--6.375 percent senior notes due 2037 at BBB+;
--5.800 percent senior notes due 2040 at BBB+;
--4.625 percent senior notes due 2042 at BBB+;
--4.650 percent senior notes due 2043 at BBB+;
--2.750 percent 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.)
Fitch has affirmed the following ratings with a Negative Outlook:
Anthem Insurance Companies, Inc.
--Long-term IDR at A+;
--9.00 percent surplus notes due 2027 at A;
--Insurer financial strength at AA-.
Fitch has affirmed the IFS ratings of the following issuers at AA- , with a Negative Outlook:
HealthKeepers, Inc.Blue Cross of CaliforniaAnthem Blue Cross Life and Health Insurance CompanyBlue 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 and Medical Service, Inc.Healthy Alliance Life Insurance Company
Additional information is available at fitchratings.com.
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