AM Best Comments on Credit Ratings of UnitedHealth Group Incorporated & Its Subsidiaries Following Change Healthcare Inc. Acq...
AM Best has commented that the Credit Ratings (ratings)
of UnitedHealth Group Incorporated (UnitedHealth Group)
(Minnetonka, MN) [NYSE:UNH] and its insurance subsidiaries remain
unchanged following the announcement that the group will acquire
Change Healthcare Inc. (Change Healthcare) (Nashville, TN)
[NASDAQ:CHNG], a leading health care technology company. The
outlooks of the ratings remain positive.
It is anticipated that Change Healthcare will be combined with
UnitedHeath Groups’ OptumInsight operations. The combination of
OptumInsight and Change Healthcare will further advance the
organization toward its corporate goal of enhancing the performance
of the health care system and improve overall health and well-being
of individuals. The transaction follows OptumInsight’s focus on
modernizing health care through the utilization of technology.
The cost of the transaction is estimated at approximately $13
billion, including the retirement of Change Healthcare’s current
debt. AM Best anticipates that UnitedHealth Group will
finance the transaction through a combination of debt and
cash, and the transaction will close in the second half of 2021
once the necessary approvals are received. Additionally, while this
transaction initially will increase UnitedHealth Groups’ financial
leverage, AM Best expects it to remain within the tolerance for the
current rating level. Furthermore, financial leverage will moderate
in the medium term, based on equity growth and/or management’s
capital deployment strategy. UnitedHealth Group manages its
debt-to-capital ratio at 40% on a long-term basis and the company
has demonstrated its ability to de-leverage to its target range in
a relatively short time. However, UnitedHealth Group maintains
strong interest coverage, which was greater than 11 times for
full-year 2019. UnitedHealth Group also has a high level of
financial flexibility, supported by its large commercial paper
program, parent company cash and substantial subsidiary dividend
capacity, as well as its $12.5 billion revolving credit facility.
Furthermore, UnitedHealth Group has significant non-regulated
operating earnings and cash flows from its Optum operations, which
include OptumRx, OptumCare and OptumInsight.
The positive outlooks reflect the continued strengthening of
profitability metrics of UnitedHealth Group’s UnitedHealthcare
health insurance operations. The Change Healthcare transaction is
not anticipated to materially alter the operating performance of
UnitedHealthcare in the near to medium term. Furthermore, the
risk-adjusted capital for the health insurance companies will not
expected to be impacted by this transaction.
Nevertheless, UnitedHealth Group’s percentage of goodwill and
intangible assets to equity is high and was at 115% at Sept. 30,
2020, and the Change Healthcare transaction likely will increase
this metric. Additionally, potential changes in the credit market
could cause the cost of capital for financing to increase.
This press release relates to Credit Ratings that have been
published on AM 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 AM Best’s Recent Rating
Activity web page. For additional information regarding the use and
limitations of Credit Rating opinions, please view Guide to Best’s
Credit Ratings. For information on the proper media use of Best’s
Credit Ratings and AM Best press releases, please view Guide for
Media - Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.
AM Best is a global credit rating agency, news publisher and
data analytics provider specializing in the insurance industry.
Headquartered in the United States, the company does business in
over 100 countries with regional offices in New York, London,
Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more
information, visit www.ambest.com.
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