OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has assigned a debt rating of “bbb+” to $2.7 billion of senior unsecured notes issued by WellPoint, Inc. (WellPoint) (Indianapolis, IN) [NYSE: WLP]. The outlook assigned to the ratings is stable. The existing ratings of WellPoint and its subsidiaries are unchanged.
The securities are being issued in four separate tranches consisting of $850 million 2.25% five-year notes, $800 million 3.50% ten-year notes, $800 million 4.65% 30-year notes and $250 million 4.85% 40-year notes. A portion of the proceeds from the issuance is anticipated to be used to repay the company’s $500 million 5.0% senior notes due December 2014 and to redeem or repurchase all or a portion of its $1.1 billion senior notes due in 2016. The remaining proceeds will be used for general corporate purposes, which could include share repurchase and repayment of outstanding commercial paper and/or long-term debt.
Although sizable, the debt issuance will effectively increase WellPoint’s financial leverage only modestly, assuming the majority of proceeds is ultimately used to retire debt. WellPoint’s debt-to-capital ratio was about 38% at June 30, 2014, which A.M. Best considers relatively high. WellPoint’s elevated leverage is mostly related to the financing of the company’s acquisition of Amerigroup in 2012 and debt refinancing activity in 2013. It is anticipated that leverage will remain high for the remainder of the year due to the company’s limited ability to reduce long-term debt, continued dividends to shareholders and its substantial share repurchase program. Although WellPoint’s interest coverage is good at approximately seven times, it is lower than industry peers. Prospectively, A.M. Best expects the organization’s interest coverage to increase and overall financial leverage to moderate slightly, which could facilitate a positive rating action in the medium term.
WellPoint continues to produce strong operating cash flows. Additionally, the company maintains strong liquidity with a high level of holding company cash and marketable investments, robust subsidiary dividends, its $2.5 billion commercial paper program and its undrawn $2.0 billion credit facility.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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