Best’s News & Research Service - July 06, 2015 05:18 PM (EDT)
A.M. Best Places Ratings of Health Net, Inc. and Its Subsidiaries Under Review With Developing Implications
- July 06, 2015 05:18 PM (EDT)
Oldwick //BestWire// - A.M. Best has placed under review with developing implications the financial strength rating of B++ (Good) and the issuer credit ratings (ICR) of "bbb" of Health Net of California, Inc., Health Net Life Insurance Company, Health Net Health Plan of Oregon, Inc. and Health Net of Arizona, Inc. A.M. Best also has placed under review with developing implications the ICR of "bb" and the debt rating of "bb" on the $400 million 6.375% senior unsecured notes due 2017 of the parent company, Health Net, Inc. (Health Net) (Woodland Hills, CA) (NYSE: HNT).
The rating action follows the announcement that Health Net has recently entered into a definitive agreement under which the organization would be purchased by Centene Corporation (Centene) (NYSE: CNC).
The acquisition of Health Net by Centene would create a leading diversified multi-national health care organization with more than ten million members throughout the United States. The combined organization will have a strong presence in the California Medicaid program and will be one of the largest Medicaid managed organizations in the country. This transaction will provide growth opportunities in government programs including TRICARE, the U.S. Department of Veterans Affairs and in various exchange populations. Additionally, the new company has the potential for significant cost synergies through integration of a range of specialty services and leveraging capabilities in information technology systems and process management.
Centene will acquire all of the shares of Health Net in a cash and stock transaction valued at $6.8 billion, including the assumption of approximately $500 million of debt. Pro forma financial leverage is expected to be approximately 40%, and goodwill is anticipated to increase considerably. The acquisition will be subject to shareholder approval and regulatory approval in multiple jurisdictions, which is expected to close in early 2016.
The under review status reflects A.M. Best's concern regarding the execution and integration risk related to the transaction as well as the capitalization of the entities post-close. A.M. Best will hold discussions with the senior management team and conduct further analysis to determine the final rating opinion.
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center.
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