Fitch: Coventry's Ratings Remain on Rating Watch Positive Pending Close of
Acquisition by Aetna
NEW YORK -- February 15, 2013
Fitch Ratings said today that the ratings of Coventry Health Care, Inc.
(Coventry) remain on Ratings Watch Positive pending the close of Coventry's
previously announced acquisition by Aetna Inc. (Aetna). These ratings include
the company's long-term Issuer Default Rating (IDR) of 'BBB' and the 'BBB-'
ratings on the company's senior unsecured securities. A complete list of
affected ratings appears below.
Todays' rating actions follow completion of Fitch's review of interim events
leading to the acquisition's expected mid-2013 close. Fitch had placed
Coventry's ratings on Rating Watch Positive on Aug. 20, 2012 following the
company's announcement that it had entered into a definitive agreement to be
acquired by Aetna in exchange for Aetna common shares and cash totaling $5.7
Since that time, Coventry shareholders have voted to formally adopt the
agreement governing the acquisition, Aetna has issued $2 billion of senior
unsecured securities to finance a portion of the acquisition, and Aetna has
taken steps required to obtain necessary regulatory approvals.
KEY RATING DRIVERS
The Positive Rating Watch continues to reflect Fitch's view that following the
transaction, the combined entity will benefit from significantly stronger
market positioning, larger absolute earnings and revenues bases, and enhanced
benefits from economies of scale than Coventry possesses on a stand-alone
These expected benefits are partially offset by a projected increase in the
combined Aetna-Coventry entity's financial leverage and the possibility of a
modest reduction in interest coverage levels relative to Coventry's recently
reported levels, depending on the combined operating performance of the two
companies going forward.
Assuming the acquisition closes as expected, Fitch will most likely upgrade
the ratings on Coventry's senior unsecured notes to align them with Aetna's
then current ratings. Fitch currently rates Aetna's senior unsecured debt at
'A-', with a Negative Rating Watch.
If the acquisition were to fail to close as expected, Fitch would likely
remove Coventry's ratings from Rating Watch Positive and leave them at their
Coventry's stand-alone ratings continue to be supported by the company's solid
historical operating performance, good cash flow, conservative investment
profile and reasonable financial leverage.
Coventry's ratings also reflect the effect of very strong competition in the
commercial health sector, ongoing risks associated with the implementation of
health reform legislation, and continued concerns related to unsustainable
medical cost trends.
The following ratings remain on Ratings Watch Positive:
Coventry Health Care, Inc.
--IDR at 'BBB';
--$400 million 6.30% senior unsecured notes due 2014 at 'BBB-'.
--$250 million 6.125% senior unsecured notes due 2015 at 'BBB-';
--$400 million 5.95% senior unsecured notes due 2017 at 'BBB-';
--$600 million 5.45% senior unsecured notes due 2021 at 'BBB-'.
Additional information is available at www.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:
--'Insurance Rating Methodology' (Jan. 11, 2013);
--'Health Insurance and Managed Care (U.S.) Sector Credit Factors Special
Report' (Jan. 29, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology -- Amended
Health Insurance and Managed Care (U.S.)
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Gregory W. Dickerson, +1-212-908-0220
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Mark E. Rouck, CPA, CFA, +1-312-368-2085
James B. Auden, CFA, +1-312-368-3146
Brian Bertsch, +1-212-908-0549
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