MOODY'S CONFIRMS CREDIT RATINGS OF CIGNA CORPORATION AND SUBSIDIARIES (SENIOR DEBT AT A3) FOLLOWING ANNOUNCEMENT TO ACQUIRE HEALTHSOURCE, INC; B1 SUBORDINATED DEBT RATING OF HEALTHSOURCE IS ON REVIEW FOR POSSIBLE UPGRADE
New York, 2/28/1997 -- Moody's Investors Service confirmed the credit ratings of CIGNA Corporation (senior debt rating at A3) and its subsidiaries following the announcement that CIGNA has signed a definitive agreement under which it has agreed to tender for cash all of the outstanding shares of HealthSource, Inc. At the same time, Moody's placed the B1 convertible subordinated debt rating of HealthSource, Inc. on review for possible upgrade.
According to Moody's, the confirmation of CIGNA's ratings is based primarily on the strategic benefits provided by the addition of the HealthSource operations, which are somewhat offset by the increase in financial leverage that will result from this transaction.
Moody's said that Healthsource provides CIGNA with an opportunity to expand its market presence and to leverage its complementary skill sets in both CIGNA's HMO and indemnity lines of business. Healthsource has solid market share in several states that will provide CIGNA with access to new markets. Additionally, HealthSource has demonstrated skill in establishing good provider relationships and in marketing healthcare products on a retail level. Those skills are complemented by CIGNA's strong financial management of pricing, underwriting, and medical costs, which Moody's believes will help to address HealthSource's recent profitability pressures.
The rating agency noted, however, that the benefits of the proposed transaction are offset by several concerns. These concerns also prompted the rating agency to change its outlook for the credit ratings of CIGNA and its principal life insurance subsidiary, Connecticut General Life Insurance Company. Moody's cited the rise in CIGNA's financial leverage resulting from the proposed acquisition, the possibility for additional growth through acquisition over the medium term, and the rising level of competition in the healthcare marketplace. Moody's also believes that it believes CIGNA will face challenges in widening HealthSource's operating margins and that the strategic benefits of the acquisition will only emerge gradually.
The following ratings were confirmed:
CIGNA Corporation -- senior debt rating at A3; provisional senior debt shelf rating at (P)A3; provisional subordinated debt shelf rating at (P)Baa1; provisional cumulative preferred stock shelf rating at (P)"baa1"; provisional non-cumulative preferred stock shelf rating at (P)"baa2"; and rating of the company for commercial paper at Prime-2.
Connecticut General Life Insurance Company -- insurance financial strength rating at Aa3.
Insurance financial strength ratings were confirmed at Baa1 for the following members of the active property/casualty insurance group:
Insurance Company of North America;
CIGNA Property and Casualty Insurance Company;
Pacific Employers Insurance Company;
CIGNA Insurance Company;
Bankers Standard Insurance Company;
Bankers Standard Fire & Marine Insurance Company;
CIGNA Indemnity Insurance Company;
CIGNA Employers Insurance Company;
CIGNA Fire Underwriters Insurance Company;
Atlantic Employers Insurance Company;
CIGNA Insurance Company of Illinois;
CIGNA Insurance Company of Ohio;
CIGNA Insurance Company of Texas;
CIGNA Insurance Company of the Midwest; and
Allied Insurance Company.
Insurance financial strength ratings were confirmed at Ba1 for the following members of the inactive Brandywine group:
Century Indemnity Company, and
CIGNA Reinsurance Company.
The rating outlook for the active property and casualty operations is changed to stable from positive, whereas the rating outlooks for CIGNA and Connecticut General are negative following these rating actions. The rating outlook for the inactive property and casualty operations continues to be stable.
The following rating was placed on review for possible upgrade:
HealthSource, Inc. -- Convertible subordinated notes at B1.
CIGNA Corporation, based in Philadelphia, is a leading provider of health care, insurance, and financial services in the United States, and it is also one of the largest U.S.-based international insurance organizations. CIGNA reported consolidated assets of approximately $99 billion and shareholders' equity of approximately $7.2 billion as of December 31, 1996.
Headquartered in Hooksett, New Hampshire, Healthsource, Inc. is a diversified managed care company with plans and other administrative operations in the Northeastern, Midwestern and Southeastern regions of the United States.
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