A.M. Best Co. has assigned a debt rating of “bbb+” to the proposed $1.25 billion senior unsecured notes to be issued by WellPoint, Inc. (WellPoint) (Indianapolis, IN) (NYSE: WLP). The assigned outlook is stable. The existing ratings of WellPoint and its subsidiaries are unchanged.
The securities are expected to be issued in two separate tranches consisting of $650 million five and $600 million 30-year notes. A portion of the proceeds from the issuance is anticipated to be used to fund a tender offer launched by WellPoint on July 30, 2013. Any excess proceeds will be used for general corporate purposes, which could include repayment of outstanding debt. The cash tender offer for $600 million is comprised of two tranches: the first tranche is an offer to purchase $300 million of WellPoint’s 5.875% notes due 2017 and 7.0% notes due 2019; and the second tranche is an offer to purchase $300 million of WellPoint’s 5.95% notes due 2034, 5.85% notes due 2036, 6.375% notes due 2037 and 5.8% notes due 2040.
The debt issue and tender offer should not have a material effect on WellPoint’s financial leverage. WellPoint’s debt-to-capital ratio was about 38% as of June 30, 2013, which A.M. Best considers high. The elevation in leverage is mainly due to the financing of WellPoint’s acquisition of AMERIGROUP Corporation, which closed on December 24, 2012. It is anticipated that leverage will moderate over the next 18 months. A.M. Best notes that WellPoint’s interest coverage is good at approximately eight times. WellPoint maintains a good level of financial flexibility through its strong parent company cash balance, subsidiary dividends, its $2.5 billion commercial paper program and undrawn $2.0 billion credit facility.
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.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 © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.