CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A-' rating to UnitedHealth Group Incorporated's (UnitedHealth) proposed issuance of $750 million of senior unsecured notes. Fitch has also affirmed the existing ratings of UnitedHealth and its operating subsidiaries. The Rating Outlook is Stable. A full rating list is shown below.
Fitch expects proceeds from the debt issuance to be used primarily to replace a portion of the company's first-quarter 2011 debt maturities. As a result, the agency views the proposed issuance as having a modest effect on UnitedHealth's financial leverage.
Fitch affirmed UnitedHealth's ratings and revised the Outlook on the company's ratings to Stable from Negative on Jan. 12, 2011. This rating action reflected Fitch's belief that health care reform's impact on the business models and operating fundamentals of issuers operating in the health insurance and managed care sector will be manageable, albeit still subject to uncertainty, particularly beyond the 12-24-month period covered by the Rating Outlook.
UnitedHealth continues to produce solid operating margins and cash flow, despite unfavorable economic conditions. The company recently reported net earnings $4.6 billion for the 12 months ended Dec. 31, 2010, which translates into an EBIT margin of 8.4%, up from 7.3% for 2009.
UnitedHealth's financial leverage has declined significantly over the past two years. At Dec. 31, 2010, the company reported debt-to-total capital of approximately 30%, down from 38% at year-end 2008. Over the same time frame, the company's financial leverage as measured by debt/EBITDA has declined from 2.05 times (x) to 1.25x.
Fitch's ratings on UnitedHealth reflect the inherent strength and diversity of the company's health services operations, good balance sheet fundamentals, very strong earnings track record, and excellent cash flow. UnitedHealth has a balanced mix of risk-based and fee-based businesses, which have contributed significantly to the stability of the company's financial performance. In addition, a material amount of unregulated cash flow is generated by businesses outside its more traditional health insurance lines.
The ratings also consider risks associated with the ongoing implementation of health reform legislation, the competitive pressures in several of the company's markets driven by price competition, as well as the unsustainable rate of increases in medical costs.
Key rating drivers that could result in an upgrade include a material reduction in leverage, specifically expectations for run-rate ratios of debt/EBITDA below 1.0x, debt/total capital below 20% and EBITDA/interest above 15x.
Key rating drivers that could result in a downgrade include developments related to health care reform that significantly impair UnitedHealth'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 would lead to consideration of a negative rating action.
Fitch has assigned the following rating:
UnitedHealth Group, Inc.
--$750 million senior notes 'A-'.
Fitch has affirmed the following UnitedHealth Group, Incorporated ratings:
--Short-term Issuer Default Rating at 'F1';
--Commercial paper rating at 'F1';
--5.25% senior unsecured notes due 2011 at 'A-';
--5.5% senior unsecured notes due 2012 at 'A-';
--4.875% senior unsecured notes due 2013 at 'A-';
--4.875% senior unsecured notes due 2013 at 'A-';
--4.75% senior unsecured notes due 2014 at 'A-';
--5% senior unsecured notes due 2014 at 'A-';
--4.875% senior unsecured notes due 2015 at 'A-';
--5.375% senior unsecured notes due 2016 at 'A-';
--6% senior unsecured notes due 2017 at 'A-';
--6% senior unsecured notes due 2017 at 'A-';
--6% senior unsecured notes due 2018 at 'A-';
--3.875% senior unsecured notes due 2020 at 'A-';
--0% senior unsecured notes due 2022 at 'A-';
--5.8% senior unsecured notes due 2036 at 'A-';
--6.5% senior unsecured notes due 2037 at 'A-';
--6.625% senior unsecured notes due 2037 at 'A-';
--6.875% senior unsecured notes due 2038 at 'A-';
--5.7% senior unsecured notes due 2040 at 'A-'.
Fitch has affirmed the following UnitedHealth Group Incorporated ratings with Stable Rating Outlooks:
UnitedHealth Group Inc.:
--IDR at 'A'.
UnitedHealthcare Insurance Company
UnitedHealthcare Insurance Company of Illinois
UnitedHealthcare Insurance Company of Ohio
UnitedHealthcare Insurance Company of New York
Sierra Health & Life Insurance Company, Inc.
Health Plan of Nevada, Inc.
UnitedHealthcare of Florida, Inc.
PacifiCare of Arizona, Inc.
Oxford Health Insurance, Inc.
Oxford Health Plans of New York, Inc.
UnitedHealthcare of Wisconsin, Inc
PacifiCare of Texas, Inc.
PacifiCare of California
PacifiCare Life & Health Insurance Company
UnitedHealthcare Plan of the River Valley
--Insurer Financial Strength at 'AA-'.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Insurance Rating Methodology', dated Aug. 13, 2010;
--'U.S. Health Insurance and Managed Care Rating Methodology', dated March 24, 2010;
--'Fitch's Approach to Rating Insurance Groups', dated March 24, 2010.
Applicable Criteria and Related Research:
Fitch's Approach to Rating Insurance Groups
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=586765
U.S. Health Insurance and Managed Care Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506365
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766
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