Fitch Affirms UnitedHealth Group's Ratings with a Negative Outlook

CHICAGO--()--Fitch Ratings has affirmed the 'A' Issuer Default Rating and 'A-' senior unsecured notes rating of UnitedHealth Group Incorporated (UNH) as well as the 'AA-' Insurer Financial Strength ratings of its insurance company subsidiaries. The Rating Outlook is Negative. See the complete list of rating actions at the end of this release.

KEY RATING DRIVERS

The affirmation of UNH's ratings reflects the company's leading market position and significant size and scale as well as continued strong operating performance from diverse sources. Balanced against these strengths is the increased financial leverage associated with the company's recent acquisition of Catamaran Corporation (CTRX).

The Negative Outlooks reflect uncertainty as to UNH's ability to reduce its financial leverage to levels more commensurate with the company's current ratings and, to a lesser extent, the potential operational and earnings disruptions that could arise during the CTRX integration.

UNH is currently the largest U.S. health insurer in terms of total revenues, GAAP equity and total medical membership. Fitch categorizes UNH as having a 'large' market position and size/scale under the agency's rating criteria, and companies with this profile are supportive of the 'AA' category. The company's credit profile also benefits from significant cash flows derived from subsidiaries whose dividend payments are generally less heavily regulated than those of health insurers.

UNH completed its acquisition of CTRX in the third quarter of 2015. CTRX offers retail pharmacy services to health plans and employers and provides healthcare information technology solutions to the pharmacy benefits management industry. UNH raised $14 billion in debt, including $10.5 billion in senior unsecured notes with a variety of maturities, to fund the acquisition.

Financial leverage ratios have fallen outside Fitch's medians for the current rating category following July's debt issuance to fund the CTRX acquisition. Specifically, UNH's debt-to-EBITDA and debt-to-total capital ratios increased to 2.5x and 49% as of Sept. 30, 2015 from 1.5x and 35% at Dec. 31, 2014. Fitch estimates UNH's EBITDA-based interest coverage was 12.2x based on a rolling four-quarter EBITDA through Sept. 30, 2015 and forecasted full year 2016 interest expense. This ratio is down significantly from a very strong 19x for full-year 2014.

UNH's ratings recognize the company's solid operating margins and overall profitability, as well as the inherent strength and diversity of the company's health benefits and health services operations. UNH reported an EBITDA margin of 8.6% through the first nine months of 2015, down compared with 9.0% for full-year 2014. UNH's operating margins remain supportive of the company's current rating.

UNH's businesses display great scale and diversity. Sources of unregulated earnings and cash flows have grown steadily over the past several years. The company's Optum business segment contributed $2.7 billion of pre-tax income in the first nine months of 2015. CTRX increases UNH's scale and diversity, particularly its sources of unregulated earnings and cash flows.

RATING SENSITIVITIES

Key rating triggers that could result in a downgrade include:

--Lack of meaningful progress over the next 12-24 months towards debt-to-EBITDA and financial leverage ratios approximating 1.5x and 37%, respectively;

--EBITDA-to-interest coverage below 10x.

Key rating triggers that could result in a return to a Stable Outlook include:

--Significant progress toward deleveraging targets of debt-to-EBITDA ratio below 1.8x and financial leverage ratio below 41%, while maintaining a double-digit EBITDA-to-interest coverage ratio.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings with a Negative Outlook:

UnitedHealth Group Incorporated

--Long-term IDR at 'A';

--Short-term IDR at 'F1';

--Commercial paper rating at 'F1';

--5.375% senior unsecured notes due March 2016 at 'A-';

--1.875% senior unsecured notes due Nov. 2016 at 'A-';

--5.360% senior unsecured notes due Nov. 2016 at 'A-';

--Floating rate senior unsecured notes due Jan. 2017 at 'A-';

--6.000% senior unsecured notes due June 2017 at 'A-';

--1.450% senior unsecured notes due July 2017 at 'A-';

--1.400% senior unsecured notes due Oct. 2017 at 'A-';

--6.000% senior unsecured notes due Nov. 2017 at 'A-';

--1.400% senior unsecured notes due Dec. 2017 at 'A-';

--6.000% senior unsecured notes due Feb. 2018 at 'A-';

--1.900% senior unsecured notes due July 2018 at 'A-';

--1.625% senior unsecured notes due March 2019 at 'A-';

--2.300% senior unsecured notes due Dec. 2019 at 'A-';

--2.700% senior unsecured notes due July 2022 at 'A-';

--3.875% senior unsecured notes due Oct. 2020 at 'A-';

--4.700% senior unsecured notes due Feb. 2021 at 'A-';

--3.375% senior unsecured notes due Nov. 2021 at 'A-';

--2.875% senior unsecured notes due Dec. 2021 at 'A-';

--2.875% senior unsecured notes due March 2022 at 'A-';

--3.350% senior unsecured notes due July 2022 at 'A-';

--0% senior unsecured notes due Nov. 2022 at 'A-';

--2.750% senior unsecured notes due Feb. 2023 at 'A-';

--2.875% senior unsecured notes due March 2023 at 'A-';

--3.750% senior unsecured notes due July 2025 at 'A-';

--4.625% senior unsecured notes due July 2035 at 'A-';

--5.8% senior unsecured notes due March 2036 at 'A-';

--6.5% senior unsecured notes due June 2037 at 'A-';

--6.625% senior unsecured notes due Nov. 2037 at 'A-';

--6.875% senior unsecured notes due Feb. 2038 at 'A-';

--5.7% senior unsecured notes due Oct. 2040 at 'A-';

--5.95% senior unsecured notes due Feb. 2041 at 'A-';

--4.625% senior unsecured notes due Nov. 2041 at 'A-';

--4.375% senior unsecured notes due March 2042 at 'A-';

--3.95% senior unsecured notes due Oct. 2042 at 'A-';

--4.25% senior unsecured notes due March 2043 at 'A-';

--4.750% senior unsecured notes due July 2045 at '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.

PacifiCare 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

--IFS at 'AA-'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 16 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=995926

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=995926

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Douglas M. Pawlowski, CFA
Senior Director
+1-312-368-2054
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60601
or
Secondary Analyst
Mark E. Rouck, CPA, CFA
Senior Director
+1-312-368-2085
or
Committee Chairperson
Douglas L. Meyer, CFA
Managing Director
+1-312-368-2061
or
Media Relations
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Douglas M. Pawlowski, CFA
Senior Director
+1-312-368-2054
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60601
or
Secondary Analyst
Mark E. Rouck, CPA, CFA
Senior Director
+1-312-368-2085
or
Committee Chairperson
Douglas L. Meyer, CFA
Managing Director
+1-312-368-2061
or
Media Relations
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com