Credit rating giant Moody’s Investor Service recently assigned an A3 senior unsecured debt rating to the planned issuance of around $4 billion senior unsecured debt of UnitedHealth Group Incorporated (UNH - Free Report) . The total amount is due in June 2021, 2023, 2028 and 2048. The rating outlook stays stable.
Net proceeds from the same would be used for repaying commercial paper borrowings as well as general corporate expenditure of the company (that might consist of redeeming or repurchasing outstanding securities or refinancing debt).
The credit rating agency expects the proceeds to be primarily used for paying back $4.4 billion of commercial paper outstanding as of Mar 31, 2018. As such there should not be any considerable change in the company’s indebtedness.
Moody’s debt-to-capital was 42.5% as of Mar 31, 2018, above the high end of its rating expectation. Moreover, the agency notes that the $4.9 billion worth acquisition of DaVita Medical Group, which is expected to be closed in 2018, would be paid through a combination of commercial paper, cash and debt. This acquisition will effectively increase the leverage ratio of the company to more than 44%, lying above the rating agency’s benchmark.
As on Mar 31, the parent company had $587 million in cash and cash equivalents.
The A3 senior unsecured debt rating and A1 insurance financial strength rating of UnitedHealthare based on its strong business profile, primarily driven by its national presence, brand value, membership base, diverse benefits and services product offerings as well as an impressive level of unregulated revenues.
The ratings also find support in a solid financial profile characterized by a steady, consistent earnings performance, a conservative and well-diversified investment portfolio plus a strong interest coverage from both regulated and unregulated operations. However, all these are partially offset by the aforementioned high leverage and a significant amount of goodwill and intangibles from past acquisitions.
Factors That May Lead to Rating Change
Per Moody’s, the ratings of the company may be upgraded if its financial leverage is maintained below 35%, EBITDA interest coverage is above 15x and a consolidated risk-based capital ratio is more than 275% of company action level.
Additionally, the ratings can get downgraded if the financial leverage of the company is maintained above 40%, the RBC (risk-based capital) ratio is sustained below 250% of CAL as well as with a significant write-down or increased likelihood of goodwill or intangibles.
In the past year, this Zacks Rank #2 (Buy) stock has surged nearly 40.6%, outperforming the industry’s growth of 34.6%.
Other Stocks to Consider
Investors interested in the Medical-HMO industry can also check out some other top-ranked stocks like WellCare Health Plans, Inc. (WCG - Free Report) , Anthem, Inc. (ANTM - Free Report) , and Humana Inc. (HUM - Free Report) .
WellCare provides managed care services for government-sponsored health care programs. It sports a Zacks Rank #1 (Strong Buy) and delivered a whopping four-quarter positive surprise of 51.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Anthem operates as a health benefits company in the United States. With a Zacks Rank of 2, the company managed to pull off an average trailing four-quarter earnings surprise of 7.22%.
Humana works as a health and well-being company in the United States. It holds a Zacks Rank #2 (Buy). In the past four quarters, the company came up with an average beat of 6.16%.
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