OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has assigned Long-Term Issue Credit Ratings of “bbb+” to the $625 million 3.375% senior unsecured notes due 2027 and the $725 million 4.25% senior unsecured notes due 2047 that were recently issued by UnitedHealth Group Incorporated (UnitedHealth) (Minnetonka, MN) [NYSE:UNH]. The outlook assigned to these Credit Ratings (ratings) is stable. A.M. Best expects the proceeds from this offering to be used by UnitedHealth to pay down outstanding commercial paper borrowings and for debt maturities in June and July of 2017. The existing ratings of UnitedHealth and its subsidiaries are unchanged.
Following these issuances, A.M. Best expects UnitedHealth’s financial leverage to remain unchanged. UnitedHealth’s debt-to-capital ratio was at 46% at year-end 2016. The ratio is elevated mainly due to a significant increase in debt in 2015 for the financing of the acquisition of Catamaran Corporation. Despite the increase in elevated financial leverage, UnitedHealth maintains strong interest coverage of 12 times. In addition, UnitedHealth plans to lower its financial leverage to below 40% by the end of 2017. UnitedHealth’s ratio of goodwill plus intangibles to shareholders’ equity increased substantially following the Catamaran transaction and exceeds 145%, which puts pressure on 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, which is supported by its commercial paper program, parent company cash, subsidiary dividends and credit facility. Moreover, UnitedHealth’s non-regulated operating earnings and cash flows are materially higher than that of its peers. The company’s net income increased significantly in 2016 driven by the strong earnings contribution from the Optum operations. Additionally, consolidated earnings are projected to remain strong.
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.
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