A.M. Best Comments on Credit Ratings of UnitedHealth Group Incorporated & Its Subsidiaries Following Announcement of Acquisit...
December 07 2017 - 9:56AM
Business Wire
A.M. Best has commented that the Credit Ratings (ratings)
of UnitedHealth Group Incorporated (UnitedHealth)
(Minnetonka, MN) [NYSE:UNH] and its insurance and health
maintenance organizations’ subsidiaries remain unchanged following
the announcement that UnitedHealth’s Optum has entered into an
agreement to acquire DaVita Medical Group, which serves 1.7 million
patients through almost 300 primary and specialty care locations,
as well as 35 urgent care centers and six outpatient surgery
centers, for approximately $4.9 billion in cash.
DaVita Medical Group will become part of UnitedHealth’s
OptumCare division. The addition of DaVita Medical Group will
materially increase the number of OptumCare outpatient facilities
for the organization predominantly in California, Colorado,
Florida, Nevada, New Mexico and Washington. The transaction follows
OptumCare’s focus on quality cost-efficient health care delivery.
Over the past year, Optum has combined with Surgical Care
Associates and The Advisory Board; DaVita Medical Group further
strengthens Optum’s geographic presence of its primary and
specialty providers and care delivery locations.
A.M. Best expects that UnitedHealth will finance the cash
transaction with a combination of cash and borrowings, either
commercial paper or debt securities with an anticipated close in
2018. A.M. Best projects that the transaction could initially
increase UnitedHealth’s financial leverage at close based on
timing. However, A.M. Best expects UnitedHealth will manage its
debt-to-capital ratio in the low 40% range and anticipates it to
return to near 40% in a manageable timeframe, which is within the
tolerances that UnitedHealth has provided regarding its financial
leverage targets. UnitedHealth’s financial leverage was
approximately 40% at the end of third-quarter 2017, which is
materially lower than what was reported in the prior two years. The
higher leverage ratios in 2016 and 2015 were due to debt issued for
the acquisition of Catamaran Corporation, and the current level is
the result of the execution of the de-leveraging strategy by
UnitedHealth.
UnitedHealth maintains strong interest coverage of greater than
10 times, as well as good financial flexibility that is supported
by its sizeable commercial paper program, parent company cash,
subsidiary dividends and its credit facility. Furthermore,
UnitedHealth has significant non-regulated operating earnings and
cash flows from Optum that are materially higher than that of its
peers. Nevertheless, UnitedHealth’s ratio of goodwill plus
intangibles to shareholders’ equity is high due to the company’s
history of acquisition activity and exceeds 180%, which puts
pressure on UnitedHealth’s balance sheet. However, the company has
no history of sizeable goodwill write-downs, and recent large-scale
acquisitions by Optum have had a favorable impact on revenues and
earnings for the division. Consolidated net income continues to
trend upward driven by enrollment growth and margin expansion for
the UnitedHealthcare business and the expansion of earnings
generated by Optum. A.M. Best anticipates the strong consolidated
earnings trend to continue.
This press release relates to Credit Ratings that have been
published on A.M. Best’s website. For all rating information
relating to the release and pertinent disclosures, including
details of the office responsible for issuing each of the
individual ratings referenced in this release, please see A.M.
Best’s Recent Rating Activity web page. For
additional information regarding the use and limitations of Credit
Rating opinions, please view Understanding Best’s Credit
Ratings. For information on the proper media use of Best’s
Credit Ratings and A.M. Best press releases, please view
Guide for Media - Proper Use of Best’s Credit Ratings and A.M.
Best Rating Action Press Releases.
A.M. Best is the world’s oldest and most authoritative
insurance rating and information source. For more information,
visit www.ambest.com.
Copyright © 2017 by A.M. Best Rating
Services, Inc. and/or its subsidiaries. ALL RIGHTS
RESERVED.
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version on businesswire.com: http://www.businesswire.com/news/home/20171207005822/en/
A.M. BestBridget Maehr, +1 908-439-2200, ext.
5321Senior Financial
Analystbridget.maehr@ambest.comorSally Rosen, +1
908-439-2200, ext. 5280Senior
Directorsally.rosen@ambest.comorChristopher Sharkey, +1
908-439-2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorJim Peavy, +1
908-439-2200, ext. 5644Director, Public
Relationsjames.peavy@ambest.com
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