Best’s News & Research Service - April 06, 2016 03:56 PM (EDT)
A.M. Best Removes From Under Review and Affirms Ratings of Health Net, Inc. and Its Subsidiaries
- April 06, 2016 03:56 PM (EDT)
Oldwick //BestWire// - A.M. Best has removed from under review with developing implications and affirmed 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. (Tigard, OR) and Health Net of Arizona, Inc. (Tempe AZ). All companies are headquartered in Woodland Hills, CA unless otherwise specified. A.M. Best also has removed from under review with developing implications and affirmed the ICR of “bb” and the issue rating of “bb” on the $400 million 6.375% senior unsecured notes due 2017 of the parent company, Health Net, Inc. (Health Net). The outlook assigned to each rating is stable.
The rating affirmations follow the March 24, 2016, completion of Centene Corporation’s (Centene) [NYSE: CNC] acquisition of Health Net. As a result of the acquisition, Health Net is a wholly owned subsidiary of Centene, and is no longer a publicly traded company. In addition, the combined company will be headquartered in St. Louis, MO. The acquisition created a leading diversified multinational health care organization with more than 10 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 provides growth opportunities in government programs including TRICARE, the U.S. Department of Veterans Affairs and in exchange products in multiple states. 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 and Health Net teams have been working over the past eight months to develop an integration plan that leverages the talents and expertise of both companies.
Health Net shareholders received 0.622 shares of Centene common stock and $28.25 in cash for each share of Health Net common stock held at closing, for a total transaction value of approximately $6.0 billion, including the assumption of debt. The combined pro forma financial leverage is expected to be approximately 45%, and goodwill is anticipated to increase considerably.
Health Net’s 2015 fiscal year end operating results improved with increased revenue and earnings. In addition, the company reported higher shareholder’s equity for the year. The growth trends have been primarily supported by higher membership in Medicaid programs. However, some of Health Net’s core subsidiaries have reported a significant decline in earnings due to the costs of participating in the exchange and other fees related to the Affordable Care Act. In addition, during 2015, a number of capital infusions from the holding company were made to several of its insurance subsidiaries to maintain risk-adjusted capital levels. A.M. Best expects that the parent company will continue to provide capital support when needed. Going forward, the combined companies will face the challenges of integration risk and business execution risk.
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 see A.M. Best’s Recent Rating Activity web page.
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