Standard & Poor’s has alerted the Anthem, Cigna and Aetna that the substantial debt required to finance the proposed mergers between them may affect their proposed credit ratings to fall.
The credit rating of Humana could increase in a merger with Aetna, S&P stated.
On the other perspective, if the mergers are run well, the outcome would make better the companies’ long-term competitive posts, putting them on a closer footing with company leader UnitedHealth Group in sorts of revenue size and membership, the agency claimed in its report on the impact the mega mergers would have on the credit quality of insurers.
Also, other players could take benefit of the likely business divestitures outcoming from the mergers, S&P stated. The greatest publicly traded health insurers outside of what would become the big 3 and Centene/Health Net are Molina Healthcare, WellCare Health Plans and Universal American Corp, all government-based Medicare-Medicaid insurers.
Blue Cross Blue Shield could make minor to mid-size acquisitions, it stated.
The ratings facility weighed in the proposed mergers among the nation’s top insurance policies as they come under extreme antitrust scrutiny in the year 2016: Anthem’s $52.5 billion takeover of Cigna; Aetna’s $38.5 billion merger with Humana; and to a lower degree of complication, Centene’s proposed $6.8 billion merger with Health Net.
Anthem, Cigna and Centene have aligned up bridge financing of $26.5 billion: $16.2 billion; and $2.7 billion respectively, S&P stated in its report.
“Deployed on our present analysis, we could reduce our ratings on Anthem/Cigna by up to 2 notches and Aetna by up to one notch,” S&P claimed. “Alternatively we could increase our rating on Humana by up to 2 notches.”
There is no rating action planned for Centene or Health Net deployed on the merger, Standard & Poor’s stated. In the month of May 2015, S&P revised its outlook on Centene from stable to positive previous to the declared deal, based on its making better competitive post.
The largest threat to the deals is that they fail to get done at all, the ratings service stated.
However the U.S. Department of Justice has not blocked health insurer mergers outright in latest years, its access to mergers is continually evolving, Standard & Poor’s stated.
“These deals are unprecedented in their complications, size and simultaneous nature. Therefore we hope the review procedure to be lengthy as it will include both the DOJ and multiple state regulators, each with their own regional interests,” Standard & Poor’s claimed. “Accordingly, Anthem/Cigna and Aetna/Humana are directing investors toward a relatively conservative 2nd half of the year 2016 transaction close, and Centene/Health Net, which is a less-complex deal, is directing toward as early as the month of February 2016.”
The insurance agencies will find problem because of political timing, as the Affordable Care Act and the health exchanges come into the national spotlight. Also, unfavorable political attention to latest mergers could impact regulatory review, at least in the background, the report stated.
The Department of Justice will make its commitment or determination of whether the mergers influence and violate antitrust laws deployed primarily on how they would affect customers, S&P claimed.
Another section will be whether the DOJ reviews the mergers as a complete or one-by-one, with the 1st option analyzed as making the post-merger market concentration problems more glaring. In the past, the most usual remedy to competitive uncertainties has been through business divestitures.
Opponents like the American Hospital Association considers divestitures at this scale may be impractical, S&P claimed.
If the deals are denied, termination fees would result: Anthem would pay Cigna $1.85 billion; Aetna would pay Humana $1 billion; and Centene would pay HealthNet nearly $250 million, in accordance to the ratings service.
Health insurers had a record-breaking year of mergers and acquisitions in the year 2015, S&P stated.
UnitedHealth Group kicked it off in the month of March 2015 when it declared a $14.2 billion acquisition of Catamaran Corp., a pharmaceutical benefit manager.
In the month of December, Kaiser Permanente declared its $1.8 billion acquisition of Group Health Cooperative, with the $1.8 billion to go towards the development of a nonprofit foundation, S&P stated.
“The present deals – specifically Anthem/Cigna and Aetna/Humana – involve more regulatory approval threat than previous deals. These deals are unprecedented in their complications, size and simultaneous nature,” stated S&P credit analyst James Sung.
No rating actions are presently warranted, S&P stated. Only a rating committee may consider and inform a rating action.
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