A.M. Best Co. has assigned a debt rating of “bbb+” to the $1.35 billion 2.75% senior convertible debentures due 2042 recently issued by WellPoint, Inc. (WellPoint) (Indianapolis, IN) [NYSE: WLP]. The rating has been placed under review with negative implications, which is consistent with the under review status of the existing ratings of WellPoint and its insurance subsidiaries. (See A.M. Best’s press release dated July 10, 2012 for further information.)
The securities are being sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. If the initial purchasers exercise their over-allotment option in full, the net proceeds from the offering would approach $1.5 billion. WellPoint intends to use up to $400 million of the net proceeds for common share repurchase and the remainder for general corporate purposes, including, but not limited to additional share repurchase and debt repayment.
Although WellPoint’s pro forma financial leverage—as well as its goodwill and intangibles to equity ratio—is somewhat higher than similarly-rated peers, A.M. Best views somewhat favorably the financial flexibility afforded by the convertible debentures. Additionally, the issuance is consistent with A.M. Best’s expectations with respect to WellPoint’s capital structure incorporating the financing for the previously announced $5.0 billion (approximate) acquisition of AMERIGROUP Corporation (Amerigroup).
The Amerigroup acquisition is expected to close by year-end 2012, subject to state and federal regulatory approvals. WellPoint’s ratings are anticipated to remain under review pending the completion of the transaction and A.M. Best’s continuing discussions with management. However, A.M. Best will continue to monitor WellPoint’s operating performance, risk-based capitalization at the operating companies and its capital structure to ensure financial and operating metrics remain within A.M. Best’s expectations.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. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.