Press Release - DECEMBER 07, 2017
A.M. Best Comments on Credit Ratings of UnitedHealth Group Incorporated and Its Subsidiaries Following Acquisition Announcement
FOR IMMEDIATE RELEASE
OLDWICK - DECEMBER 07, 2017
DaVita Medical Group will become part of UnitedHealth’s OptumCare division. The addition of DaVita Medical Group will materially increase the number of OptumCare outpatient facilities for the organization predominantly in California, Colorado, Florida, Nevada, New Mexico and Washington. The transaction follows OptumCare’s focus on quality cost-efficient health care delivery. Over the past year, Optum has combined with Surgical Care Associates and The Advisory Board; DaVita Medical Group further strengthens Optum’s geographic presence of its primary and specialty providers and care delivery locations.
A.M. Best expects that UnitedHealth will finance the cash transaction with a combination of cash and borrowings, either commercial paper or debt securities with an anticipated close in 2018. A.M. Best projects that the transaction could initially increase UnitedHealth’s financial leverage at close based on timing. However, A.M. Best expects UnitedHealth will manage its debt-to-capital ratio in the low 40% range and anticipates it to return to near 40% in a manageable timeframe, which is within the tolerances that UnitedHealth has provided regarding its financial leverage targets. UnitedHealth’s financial leverage was approximately 40% at the end of third-quarter 2017, which is materially lower than what was reported in the prior two years. The higher leverage ratios in 2016 and 2015 were due to debt issued for the acquisition of Catamaran Corporation, and the current level is the result of the execution of the de-leveraging strategy by UnitedHealth.
UnitedHealth maintains strong interest coverage of greater than 10 times, as well as good financial flexibility that is supported by its sizeable commercial paper program, parent company cash, subsidiary dividends and its credit facility. Furthermore, UnitedHealth has significant non-regulated operating earnings and cash flows from Optum that are materially higher than that of its peers. Nevertheless, UnitedHealth’s ratio of goodwill plus intangibles to shareholders’ equity is high due to the company’s history of acquisition activity and exceeds 180%, which puts pressure on UnitedHealth’s balance sheet. However, the company has no history of sizeable goodwill write-downs, and recent large-scale acquisitions by Optum have had a favorable impact on revenues and earnings for the division. Consolidated net income continues to trend upward driven by enrollment growth and margin expansion for the UnitedHealthcare business and the expansion of earnings generated by Optum. A.M. Best anticipates the strong consolidated earnings trend to continue.
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