OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has assigned a Long-Term Issue Credit Rating of “bbb+” to the forthcoming $1.5 billion senior unsecured notes of UnitedHealth Group Incorporated (UnitedHealth) (Minnetonka, MN) [NYSE:UNH]. The outlook assigned to the Credit Rating (rating) is stable. The existing ratings of UnitedHealth and its subsidiaries are unchanged.
The notes will be issued in two tranches: $750 million senior unsecured notes, due January 2027 and $750 million senior unsecured notes due, January 2047. A.M. Best expects the proceeds from this offering to be used by UnitedHealth to pay down outstanding commercial paper borrowings and for general corporate purposes.
Following these issuances, UnitedHealth’s financial leverage is expected to remain unchanged. UnitedHealth’s debt-to-capital ratio was at 47% at the end of third-quarter 2016. The elevated ratio mainly is due to a significant increase in debt in the prior year for the financing of the acquisition of Catamaran Corporation (Catamaran). Despite the increase in elevated financial leverage, UnitedHealth maintains strong interest coverage, which remains greater than 10 times. In addition, UnitedHealth plans to lower its financial leverage to approximately 40% by the end of 2017. UnitedHealth’s ratio of goodwill plus intangibles to shareholders’ equity increased substantially following the Catamaran transaction and exceeds 140%, which pressures UnitedHealth’s balance sheet. However, the company has no history of sizeable goodwill write-downs, and the acquisition of Catamaran has had a favorable effect on operating earnings for UnitedHealth’s OptumRx division.
UnitedHealth has a good level of financial flexibility that is supported by its commercial paper program, parent company cash, subsidiary dividends and credit facility. In addition, UnitedHealth has significant non-regulated operating earnings and cash flows that are materially higher than that of its peers.
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