Moody’s might lower Anthem

Moody's Investors Service said it placed Anthem, Inc.'s Baa2 senior unsecured debt rating and the A2 insurance financial strength ratings of its operating subsidiaries on review for downgrade.

The review follows the company's announcement that it entered into a definitive agreement to acquire Cigna Co. (senior debt rating at Baa1) for $54 billion. The purchase price includes the assumption of $5.1 billion of Cigna's senior long-term notes and other related transaction fees.

The transaction, which is subject to regulatory approval and other closing conditions, is expected to close at the end of 2016.

Moody's said the review reflects the adverse impact of the transaction terms announced today, which includes funding of about $6 billion in cash, $21 billion of equity and roughly $22 billion of new debt and commercial paper.

According to the agency, after the close of the transaction Anthem's financial profile would be weakened as a result of the significant projected increase in financial leverage, the large amount of goodwill associated with the purchase and the lower targeted NAIC risk-based capital ratio going forward. In particular, at the close of the transaction, adjusted debt-to-capital (where debt includes unfunded pension liabilities and operating leases) is expected to be about 49.7% (compared with 40.6% as of March 31).

Going forward, Anthem's targeted risk-based capital ratio is also expected to be lowered to 250% of company action level compared to the current targeted range of 250% to 275% company action level.

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