Fitch Affirms & Removes UnitedHealth Group from Rating Watch Negative; Outlook Negative

CHICAGO--()--Fitch Ratings has affirmed the ratings of UnitedHealth Group Incorporated (UNH) and its insurance-company subsidiaries and removed the ratings from Rating Watch Negative. Concurrent with these ratings actions, Fitch has assigned UNH and its subsidiaries Negative Rating Outlooks. A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS

Fitch's decision to remove UNH and its subsidiaries (collectively UnitedHealth Group) from Rating Watch Negative reflects the agency's improved understanding of UNH's financing and integration plans for the anticipated second half 2015 close of UNH's acquisition of Catamaran Corp. (CTRX).

The Negative Rating Outlooks assigned to UnitedHealth reflect uncertainty around UNH's ability to reduce its anticipated post CTRX close increase in 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 as CTRX is integrated into the UNH organization.

Fitch's expectation is that UNH will fund the CTRX purchase by issuing approximately $13 billion of new debt. Since the acquisition was announced, UNH has added a $1.5 billion delayed draw term loan and increased the capacity of its commercial paper program by $2 billion and plans to issue approximately $10 billion in senior unsecured debt over a broad spectrum of maturities.

Upon the close of the CTRX acquisition, Fitch estimates UNH's debt-to-EBITDA and financial leverage ratios will increase to approximately 2.4x and 48% from 1.5x and 35% respectively at yearend 2014. Fitch expects UNH's post CTRX acquisition EBITDA-based interest coverage to decline to an estimated range of 10X-12X, down from a very strong nearly 19X for the full year 2014.

Fitch estimates that by year-end 2017 debt-to-EBITDA and debt-to-total capital ratios approximating March 31, 2015 levels of 1.5X and 37%, respectively, are achievable for UNH. Under such scenarios debt would be reduced through a combination of earnings growth, retained earnings and a reduction in share repurchase activity.

Favorably, the CTRX acquisition will further increase UnitedHealth's scale and diversity, particularly its sources of unregulated earnings and cash flows. Fitch continues to view UnitedHealth's overall market position within the health insurance and managed care sector as largely unique, in that it enjoys strength across a broad spectrum of products, services, and geographies.

First quarter 2015 operating results continue to be strong and consistent with Fitch's median sector credit factor guidelines for the current rating level. UNH reported annualized return on average capital of 11.3% during the first quarter of 2015, essentially unchanged from full year 2014's result. EBITDA margin was 8.4% during the first quarter of 2015, up from 7.6% in the comparable period of 2014, but off from full year 2014's figure of 9.0%.

Share repurchase activity reached $900 million year-to-date March 31, 2015 and management said it expected 'moderated share repurchase activity' for the remainder of 2015 in support of the pending Catamaran acquisition.

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 debt-to-capital 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, could lead to a return to a Stable Rating Outlook.

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';

--0.850% senior unsecured notes due 2015 at 'A-';

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

--4.25% senior unsecured notes due 2043 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

Exposure Draft: Insurance Notching Criteria (Proposed Methodology Changes) (pub. 12 May 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865576

Insurance Rating Methodology (pub. 04 Sep 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987552

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987552

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 60602
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:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@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 60602
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:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com