Newswires

July 12, 2012 Newswires

Fitch Places WellPoint on Rating Watch Negative [Health & Beauty Close – Up]

Proquest LLC

Fitch Ratings has placed the ratings of WellPoint, Inc. (WellPoint) on Rating Watch Negative.

The rating action follows WellPoint's announcement that it will acquire Amerigroup Corp. in a cash transaction valued at approximately $4.9 billion. A full list of rating actions can be found below.

The Rating Watch Negative primarily reflects an expectation for a significant deterioration in WellPoint's financial leverage metrics as a result of the acquisition.

Following the close of the acquisition, Fitch expects to downgrade WellPoint's IDR and its debt ratings by one notch. However, Fitch may downgrade the ratings by up to two notches depending upon the final combined capital structure and/or performance expectations.

Additionally, Fitch may downgrade the IFS ratings of WellPoint's subsidiaries by one notch depending upon the extent to which Fitch views the financial strength of the operating companies to be adversely affected by the weakened parent company.

Fitch expects WellPoint to fund the cash purchase price with a combination of newly issued debt and existing cash on hand. Following the issuance of new debt to finance the transaction (expected to close in first quarter-2013), Fitch expects WellPoint's consolidated financial leverage to approach 39 percent. Fitch also expects proforma debt-to-EBITDA to exceed 2.5x, which is above expectations for WellPoint's current ratings. These financial leverage metrics were 29 percent and 1.9x, respectively, at March 31.

Fitch views the acquisition as strategically beneficial to WellPoint, given the additional expertise and access Amerigroup will provide WellPoint in terms of Medicaid beneficiaries in the 12 states in which it operates. The deal 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.

WellPoint's ratings are supported by the company's strong and generally stable historical operating performance, very strong competitive position, and good statutory capitalization of its operating subsidiaries. Additionally, the IFS ratings of several WellPoint subsidiaries benefit from a parent company guaranty.

The company's ratings also reflect 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.

With approximately 33.7 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 $2.6 billion in 2011 on total revenues of approximately $60.7 billion.

Key rating triggers that could result in a downgrade include:

--Run-rate EBIT margin less than 6.8 percent;

--Run-rate EBITDA/interest of less than 7x;

--Run-rate debt/EBITDA ratio in excess of 1.9x and debt-to-total capital in excess of 35 percent;

--Run-rate consolidated RBC ratio of less than 220 percent of CAL.

Fitch has placed the following ratings on Rating Watch Negative:

WellPoint, Inc.

--6.8 percent senior notes due 2012 'A-';

--5 percent senior notes due 2014 'A-';

--6 percent senior notes due 2014 'A-';

--5.25 percent senior notes due 2016 'A-';

--5.875 percent senior notes due 2017 'A-';

--2.375 percent senior notes due 2017 'A-';

--7 percent senior notes due 2019 'A-';

--4.35 percent senior notes due 2020 'A-';

--3.7 percent senior notes due 2021 'A-';

--3.125 percent senior notes due 2022 'A-';

--5.95 percent senior notes due 2034 'A-';

--5.85 percent senior notes due 2036 'A-';

--6.375 percent senior notes due 2037 'A-';

--5.8 percent senior notes due 2040 'A-';

--4.625 percent senior notes due 2042 'A-';

--Short-term IDR 'F1';

--Commercial paper 'F1'.

WellPoint, Inc.

--Long-term IDR 'A'.

Anthem Insurance Companies, Inc.

--Long-term IDR at 'A+';

--9 percent surplus notes due 2027 'A';

--Insurer financial strength (IFS) 'AA-'.

Anthem Holding Corp. (formerly known as WellPoint Health Networks Inc.)

--Long-term IDR 'A'.

HealthKeepers, Inc.

Blue Cross of California

Anthem Blue Cross Life & Health Insurance Company

Blue 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 & Medical Service, Inc.

Healthy Alliance Life Insurance Company

--IFS 'AA-'.

Additional information is available at 'fitchratings.com' . The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Health Insurance and Managed Care (U.S.) Sector Credit Factors' (March 28,);

--'WellPoint, Inc. (And Operating Subsidiaries)' (Feb. 28,);

--'2012 Outlook: U.S. Health Insurance and Managed Care' (Dec. 14, 2011);

--'Insurance Rating Methodology' (Sept. 22, 2011);

--'WellPoint, Inc.' (Sept. 6, 2011).

Applicable Criteria and Related Research:

Health Insurance and Managed Care (U.S.) Sector Credit Factors

fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=674555

WellPoint, Inc. (And Operating Subsidiaries)

fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=672474

2012 Outlook: U.S. Health Insurance and Managed Care