MOODY'S PLACES RATINGS OF AETNA SERVICES, INC. AND AFFILIATES ON REVIEW -- DIRECTION UNCERTAIN (SENIOR AT A3) FOLLOWING ANNOUNCEMENT TO SPLIT HEALTH AND WEALTH BUSINESSES
Moody's Investors Service placed the long-term credit ratings of Aetna Services, Inc. and its affiliates on review -- direction uncertain (senior debt at A3) following Aetna's announcement that its Board of Directors has decided on a series of steps designed to enhance shareholder value, which would involve separating the global health and global financial services businesses into two independent publicly traded companies as soon as an orderly separation can be achieved. In addition, Aetna also announced intentions to undertake:
The sale of international assets that do not fit with the strategies of the newly independent health and financial services businesses, or provide an adequate return on capital.
Plans to capture strategic health care Internet opportunities
A comprehensive review of the company's health business model and strategies with the goal of improving financial performance and relationships with physicians, hospitals and patients.
Additional efforts to strengthen the financial services business and enhance its products and services.
Acceleration of an existing cost-reduction program and additional reductions resulting from a restructuring and strategic review.
According to Moody's, the rating review will primarily focus on the following issues:
What level of financial flexibility will each of the two public holding companies have in light of the sources and uses of their respective cash flows
How will obligations of Aetna Inc. and Aetna Services, Inc. be allocated for the two public companies;
What will be the composition of the two companies' capital structures; and
What level of risk-adjusted capital will be maintained in the operating subsidiaries of the two public companies.
Other issues to be considered during the review include the use of the Aetna name and the potential benefits that a separation might create for the near-term operating performance of each company.
The rating agency emphasized that over the last two years it has consistently stated that Aetna,s decision to operate both a healthcare benefits organization and a financial services business could lead to a conflict of goals between the two businesses. On the one hand, maintaining a sound credit profile, as well as solid brand recognition has become increasingly important to asset accumulators like Aetna Financial Services; on the other hand, Aetna,s goal to be a large player in the health care benefits market has led to greater business and financial risks, which do not complement the credit profile of the financial services business. Moody's stated that it will evaluate the strategies of both independent public companies in light of these forces and risks, but that it anticipates that each company could be better able to realize their respective potential as separate companies.
The following ratings were placed on review -- direction uncertain:
Aetna Services, Inc. -- senior debt rating of A3; prospective senior debt shelf rating of (P)A3; prospective subordinated debt shelf rating of (P)Baa1; prospective junior subordinated debt rating of Baa2; prospective preferred stock shelf rating of (P)"a3"; and issuer rating of A3
Aetna Capital L.L.C. -- preferred stock rating of "a3" and prospective preferred stock shelf rating of (P)"a3".
Aetna Capital Trust I through IV -- prospective preferred stock shelf rating of (P)"a3".
Aetna Life Insurance Company -- insurance financial strength rating of A1; issuer rating of A2.
Aetna Life Insurance and Annuity Company -- insurance financial strength rating of Aa3; issuer rating of A1.
Aetna Insurance Company of America -- insurance financial strength rating of Aa3.
The Prime-2 short-term debt rating for commercial paper and extendible commercial notes of Aetna Services, Inc were confirmed.
Aetna Inc., headquartered in Hartford, Connecticut, reported consolidated assets of $113 billion and shareholders' equity of $10.7 billion as of December 31, 1999.
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