MOODY'S PLACES CREDIT RATINGS OF AETNA INC AND SUBSIDIARIES ON REVIEW FOR POSSIBLE DOWNGRADE (PREFERRED STOCK RATING AT "a2")
New York, 03-16-98 -- Moody's Investors Service placed the credit ratings of Aetna Inc. and certain of its subsidiaries on review for possible downgrade. The review follows Aetna Inc.'s announcement that it has entered into a definitive agreement to acquire NYLCare Health Plans business (NYLCare)--the health care business of New York Life Insurance Company--for $1.05 billion in cash and potential additional payments contingent upon future performance. The transaction is expected to be financed with fixed income securities and is subject to Federal and state regulatory approval.
Moody's stated that its review will primarily focus on the near-term business and financial risks posed by the transaction. These include the process of pricing NYLCare's in force and prospective business, the timing and effectiveness of recontracting procedures, and the integration of systems. Moody's review will also weigh the additional debt service requirements created by the proposed acquisition with the cash flow anticipated to be generated by the NYLCare health business, and Aetna's future plans for share repurchase activities and appetite for increased financial leverage.
Moody's noted that the proposed acquisition offers Aetna opportunities to extend its membership across a wider geographic region and to broaden its provider networks. Moreover, the speed of the company's integration plans for the proposed investment appear conservative.
The rating agency noted that Aetna Inc.'s current "a2" preferred stock rating is based on the company's profitable, well managed position in the group health and life benefits market, supported by its established presence in the qualified annuity markets, with particularly strong market position in 403(b) annuities. These strengths are offset by the concentration of earnings in the highly competitive group health care market, the uncertainty surrounding the impact of marketplace and legislative reform on this market, and increased competition from mutual funds and other insurers in retirement services, many of which have stronger service capabilities and sophisticated administrative systems. In addition to these concerns, Moody's believes the company faces the potential for somewhat narrower operating margins in its health benefits operations because of the potential for higher medical costs. In light of that latter concern, we changed the outlook for the ratings of Aetna Inc. and its subsidiaries to negative from stable in January 1998.
The following ratings were placed on review for possible downgrade:
Aetna Inc. -- preferred stock rating of "a2".
Aetna Services, Inc. -- senior debt rating of A2; prospective senior debt shelf rating of (P)A2; prospective subordinated debt shelf rating of (P)A3; prospective preferred stock shelf rating of (P)"a2"; counterparty rating of A2; and P-1 short-term rating for commercial paper.
Aetna Capital L.L.C. -- preferred stock rating of "a2" and prospective preferred stock shelf rating of (P)"a2".
Aetna Life Insurance Company -- insurance financial strength rating of A1; counterparty rating of A2.
Aetna Life Insurance and Annuity Company -- insurance financial strength rating of Aa3; counterparty rating of A1.
Aetna Insurance Company of America -- insurance financial strength rating of Aa3.
Aetna Life Insurance Company of Canada -- insurance financial strength rating of A3.
Aetna Inc., headquartered in Hartford, Connecticut, reported consolidated assets of $96 billion and shareholders' equity of $11.2 billion as of December 31, 1997.
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