Fitch Expects to Rate UnitedHealth Group's Planned Senior Notes Offering
NEW YORK -- February 25, 2013
Fitch Ratings expects to assign an 'A-' rating to UnitedHealth Group Inc.'s
(UNH) proposed issue of senior unsecured notes. The rating on the planned
issuance, which Fitch expects to be comprised of a mix of 3-year, 5-year, and
30-year maturities, is equivalent to the ratings on UNH's existing senior
unsecured notes. Fitch is also affirming UNH's existing ratings. The Rating
Outlook is Stable.
A complete list of today's ratings actions follows at the end of this release.
Fitch's understanding is that UNH will use a portion of the proceeds of
today's planned issuance to help fund the second step of UNH's previously
announced acquisition of Amil Participacoes S.A. (Amil), a Brazil-based
managed care company. Fitch expects the remainder of the proceeds to be used
for general corporate purposes, including paying down a portion of UNH's
Following UNH's Oct. 8, 2012 announcement of its plan to acquire Amil, Fitch
affirmed the ratings on UNH's outstanding securities and its Insurer Financial
Strength (IFS) ratings on various UNH operating company subsidiaries.
As the first step of the Amil transaction, UNH purchased approximately 60% of
the outstanding Amil shares from controlling shareholders and management of
Amil for approximately $3.2 billion in cash. The first step of the transaction
took place in the fourth quarter of 2012. UNH has also purchased an additional
5% of outstanding Amil shares through a local open market purchase.
As the second step of the Amil transaction, UNH will conduct a tender offer
for approximately 25% of Amil's shares that are publicly owned in the first
quarter of 2013, bringing the total expected value of the transaction of
approximately $4.9 billion.
KEY RATING DRIVERS
The ratings affirmation reflects Fitch's recognition that UNH has continued to
report solid operating margins and strong key credit metrics, despite the
headwinds presented by the implementation of various elements of the Patient
Protection and Affordable Care Act (PPACA).
UNH reported net earnings of $5.5 billion in 2012, which translates into an
EBITDA margin of 9.5%, versus 9.4% for the prior year. The company's financial
leverage as measured by debt/annualized EBITDA was 1.6 times (x) in 2012, up
from 1.2x for in 2011, reflecting incremental debt issued in the fourth
quarter of 2012 to finance the first step of the Amil acquisition. UNH
reported EBITDA-to-interest coverage of 17.2x in 2012, a moderate decline from
very strong levels of 20.5x in the prior year period.
Fitch considers UnitedHealth's performance under each of these measures to be
strongly supportive of UNH's the current rating category.
UnitedHealth's financial leverage as measured by its ratio of debt-to-total
capital remains at a level that is adequate to support the current ratings. As
of Dec. 31, 2012, the company's debt-to-total capital ratio stood at 35%,
which approximates levels reported for the past several years.
Fitch expects that following the issuance of debt to complete the Amil
acquisition UNH's run-rate interest coverage and financial leverage will
remain supportive of the company's current ratings.
Fitch views UnitedHealth's overall market position within health insurance and
managed care sector as largely unique, in that it enjoys strength cross a
broad spectrum of products, services, and geographies. Fitch also notes the
increasing scale and diversity of UNH's businesses, including its sources of
unregulated earnings and cash flows, which have grown steadily over the past
In Fitch's view, UnitedHealth's diversified business platform and scale
advantages provide increased confidence that the company will continue to
generate results that support the company's current high rating category,
despite the uncertainty created by the evolving regulatory environment facing
the health insurance industry.
Fitch nevertheless remains cognizant of the risks associated with the ongoing
implementation of health reform legislation, the competitive pressures in
several of the company's markets, and the effect of medical cost inflation.
An upgrade to UNH's insurer financial strength (IFS) ratings is unlikely over
the next 12 - 24 months. Upward rating pressure is constrained due to UNH's
current ratings approaching the high end of Fitch's ratings range for health
insurers. Fitch remains concerned about potential continued unfavorable
regulatory developments and their potential effect on UNH's profits, primarily
in government-sponsored businesses.
If the company were to report debt/EBITDA ratios approximating 1.0x and
debt/capital below 30% on a sustained basis, while maintaining EBITDA/interest
coverage ratios in the midteens or better, Fitch could compress the notching
between UNH's operating company IFS ratings and holding company Issuer Default
Ratings (IDRs). This would result in a one-notch upgrade to UnitedHealth's
Key rating triggers that could result in a downgrade to all of UNH's ratings
include developments related to healthcare reform that significantly impair
UNH's ability to appropriately price its products, or otherwise severely
restrict the company's cash flow. In addition expectations for sustained
ratios of debt/EBITDA above 1.9x, debt/total capital above 35% and
EBITDA/interest below 8x could lead to negative rating actions.
Fitch has affirmed the following ratings with a Stable Rating Outlook:
UnitedHealth Group, Incorporated
--Long-term IDR 'A';
--Short-term IDR 'F1';
--Commercial paper rating 'F1';
--4.875% senior unsecured notes due 2013 'A-';
--4.75% senior unsecured notes due 2014 'A-';
--5% senior unsecured notes due 2014 'A-';
--4.875% senior unsecured notes due 2015 'A-';
--0.850% senior unsecured notes due 2015 'A-';
--5.375% senior unsecured notes due 2016 'A-';
--1.875% senior unsecured notes due 2016 'A-';
--6% senior unsecured notes due 2017 'A-';
--1.400% senior unsecured notes due 2017 'A-';
--6% senior unsecured notes due 2017 'A-';
--6% senior unsecured notes due 2018 'A-';
--3.875% senior unsecured notes due 2020 'A-';
--4.7% senior unsecured notes due 2021 'A-';
--3.375% senior unsecured notes due 2021 'A-';
--2.875% senior unsecured notes due 2022 'A-';
--0% senior unsecured notes due 2022 'A-';
--2.75% senior unsecured notes due 2023 'A-';
--5.8% senior unsecured notes due 2036 'A-';
--6.5% senior unsecured notes due 2037 'A-';
--6.625% senior unsecured notes due 2037 'A-';
--6.875% senior unsecured notes due 2038 'A-';
--5.7% senior unsecured notes due 2040 'A-';
--5.95% senior unsecured notes due 2041 'A-';
--4.625% senior unsecured notes due 2041 'A-';
--4.375% senior unsecured notes due 2042 'A-';
--3.95% senior unsecured notes due 2042 'A-'.
UnitedHealthcare Insurance Company
UnitedHealthcare Insurance Company of Illinois
UnitedHealthcare Insurance Company of New York
Sierra Health & Life Insurance Company, Inc.
Health Plan of Nevada, Inc.
UnitedHealthcare of Florida, Inc.
UnitedHealthcare of Arizona, Inc.
Oxford Health Insurance, Inc.
Oxford Health Plans of New York, Inc.
UnitedHealthcare of Wisconsin, Inc
UnitedHealthcare Benefits of Texas, Inc.
UHC of California
PacifiCare Life & Health Insurance Company
UnitedHealthcare Plan of the River Valley
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 ￢ﾀﾔ Amended
Health Insurance and Managed Care (U.S.) Sector Credit Factors
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Greg 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
Douglas L. Meyer, CFA, +1-312-368-2061
Brian Bertsch, +1 212-908-0549 (New York)
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