AM Best Comments on Credit Ratings of UnitedHealth Group Incorporated and Its Subsidiaries Following Change Healthcare Inc. Acquisition Announcement

Rhea-AI Summary

AM Best has announced that the Credit Ratings of UnitedHealth Group (UNH) and its insurance subsidiaries remain unchanged following the planned acquisition of Change Healthcare (CHNG) for approximately $13 billion. This strategic move aims to integrate Change Healthcare with UnitedHealth's OptumInsight operations to enhance healthcare performance and improve individual well-being. The transaction, expected to close in the second half of 2021, will increase UnitedHealth's financial leverage but is not anticipated to negatively impact its operational performance or risk-adjusted capital metrics.

Positive

• Acquisition of Change Healthcare for approximately $13 billion enhances UnitedHealth's technology capabilities.
• Integration with OptumInsight is expected to strengthen UnitedHealth's healthcare performance.
• Positive outlooks reflect strengthening profitability metrics of UnitedHealthcare operations.

Negative

• Transaction will initially increase UnitedHealth's financial leverage.
• Goodwill and intangible assets to equity ratio is 115%, likely to increase post-acquisition.
• Potential changes in the credit market may increase financing costs.

AM Best has commented that the Credit Ratings (ratings) of UnitedHealth Group Incorporated (UnitedHealth Group) (Minnetonka, MN) [NYSE:UNH] and its insurance subsidiaries remain unchanged following the announcement that the group will acquire Change Healthcare Inc. (Change Healthcare) (Nashville, TN) [NASDAQ:CHNG], a leading health care technology company. The outlooks of the ratings remain positive.

It is anticipated that Change Healthcare will be combined with UnitedHeath Groups’ OptumInsight operations. The combination of OptumInsight and Change Healthcare will further advance the organization toward its corporate goal of enhancing the performance of the health care system and improve overall health and well-being of individuals. The transaction follows OptumInsight’s focus on modernizing health care through the utilization of technology.

The cost of the transaction is estimated at approximately $13 billion, including the retirement of Change Healthcare’s current debt. AM Best anticipates that UnitedHealth Group will finance the transaction through a combination of debt and cash, and the transaction will close in the second half of 2021 once the necessary approvals are received. Additionally, while this transaction initially will increase UnitedHealth Groups’ financial leverage, AM Best expects it to remain within the tolerance for the current rating level. Furthermore, financial leverage will moderate in the medium term, based on equity growth and/or management’s capital deployment strategy. UnitedHealth Group manages its debt-to-capital ratio at 40% on a long-term basis and the company has demonstrated its ability to de-leverage to its target range in a relatively short time. However, UnitedHealth Group maintains strong interest coverage, which was greater than 11 times for full-year 2019. UnitedHealth Group also has a high level of financial flexibility, supported by its large commercial paper program, parent company cash and substantial subsidiary dividend capacity, as well as its $12.5 billion revolving credit facility. Furthermore, UnitedHealth Group has significant non-regulated operating earnings and cash flows from its Optum operations, which include OptumRx, OptumCare and OptumInsight.

The positive outlooks reflect the continued strengthening of profitability metrics of UnitedHealth Group’s UnitedHealthcare health insurance operations. The Change Healthcare transaction is not anticipated to materially alter the operating performance of UnitedHealthcare in the near to medium term. Furthermore, the risk-adjusted capital for the health insurance companies will not expected to be impacted by this transaction.

Nevertheless, UnitedHealth Group’s percentage of goodwill and intangible assets to equity is high and was at 115% at Sept. 30, 2020, and the Change Healthcare transaction likely will increase this metric. Additionally, potential changes in the credit market could cause the cost of capital for financing to increase.

This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2021 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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FAQ

What is the acquisition value of Change Healthcare by UnitedHealth Group?

The acquisition value of Change Healthcare by UnitedHealth Group is approximately $13 billion.

When is the UnitedHealth Group and Change Healthcare transaction expected to close?

The transaction is expected to close in the second half of 2021, pending necessary approvals.

How will the acquisition impact UnitedHealth Group's financial leverage?

The acquisition will initially increase UnitedHealth Group's financial leverage, but it is expected to remain within the tolerance for its current rating level.

Will the acquisition of Change Healthcare affect UnitedHealthcare's operations?

The transaction is not anticipated to materially alter the operating performance of UnitedHealthcare in the near to medium term.

What financial metrics are of concern for UnitedHealth Group after acquiring Change Healthcare?

The high percentage of goodwill and intangible assets to equity is a concern, as it was at 115% as of September 30, 2020, and is likely to increase post-acquisition.