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Rating Action:

Moody’s assigns Baa2 rating to new Cigna Corporation debt; affirms Cigna Holding Company

08 October 2019

New York , October 8, 2019 -- Moody's Investors Service (Moody's) has assigned a Baa2 rating to new Cigna Corporation debt being issued pursuant to an exchange offer from Cigna Corporation to exchange debt of Cigna Holding Company (Cigna Holding) as well as Express Scripts Holding Company and Medco Health Solutions, Inc. (legacy Express Scripts). Moody's also affirms the Baa2 rating of legacy Cigna and the A2 insurance financial strength (IFS) rating for Cigna's operating insurance subsidiaries. Furthermore, Moody's does not anticipate Cigna Holding issuing debt going forward. Moody's noted it will maintain ratings on any remaining Cigna Holding debt after the exchange concludes. The outlook is stable.

On October 4, Moody's separately announced that the exchange offer has no immediate impact on the Baa2 rating of legacy Express Scripts, but noted that it anticipated withdrawing the rating if the exchange offer concludes with a substantial portion of the debt being exchanged.

RATINGS RATIONALE

With the exchange offer, Moody's anticipates that the upstream and downstream guarantees between Cigna Corporation and the legacy debt will be released as the fall away provisions are triggered. In the absence of the guarantees, the Cigna Corporation debt would be structurally subordinate to the Cigna Holding debt. However, Moody's notes that there are mitigating factors: 1) the remaining Cigna Holding debt will be a small portion of consolidated Cigna's total debt, likely less than 5%; 2) Cigna Corporation, but not Cigna Holding, also benefit from the significant cash flows from Express Scripts. Given these offsetting factors, Moody's is maintaining the typical three-notch adjustment between the IFS and issuer rating.

The Baa2 rating for Cigna Holding and the A2 insurance financial strength rating of its insurance subsidiaries is based on its strong market position, relatively low underwriting risk, the strong capital position of its health insurance operating subsidiaries and the leading EBITDA margin among Moody's rated health insurers. The Baa2 rating for Cigna Corporation reflects the same factors driving Cigna Holding plus the significantly enhanced diversification and the large increase in unregulated revenues attained through the acquisition of Express Scripts in December 2018. The strengths in both instances are mitigated by the consolidated company's high leverage incurred to finance the acquisition, which are above the threshold typical investment grade issuers, along with the formidable integration risks in such a large transaction. As of June 30, 2019, Cigna's financial leverage as measured by debt/capital with Moody's adjustments was 48.1% and pro-forma adjusted debt/EBITDA was 3.8x. The rating action is predicated on the consolidated company significantly de-levering by the end of 2020.

The following drivers could place upward pressure on Cigna's ratings: 1) leverage as measured by debt-to-capital falls below 40% and debt/EBITDA moves to 2.5x or below (both measures considering Moody's adjustments); 2) EBITDA growth of the combined company is 4% or higher in 2019 and flat to positive in 2020 and 2021 (reflecting the loss of the Anthem account at ESI); and 3) the company achieves results above current consensus expectation, including revenue exceeding $150 million in 2020.

Conversely, the following drivers could place downward pressure on the ratings: 1) EBITDA and cash flow falls short of Moody's projections in 2019 -- 2021; 2) Debt-to-capital remains above 45% by year-end 2020 and Debt/EBITDA above 3.0x (both with Moody's adjustments); and 3) the company falls significantly below its cash flow from operations targets of $8 billion and $7 billion in 2019 and 2020, respectively.

Moody's added that a successful integration of ESI, resulting in the generation of strong levels of unregulated and diversified cash flows available to the parent company, accompanied by deleveraging, could lead to tighter debt notching at the parent, as compared with the current 3-notch gap between Cigna's operating insurance subsidiaries A2 IFS ratings and the parent company's Baa2 senior debt ratings.

Cigna Corporation -- senior unsecured debt affirmed at Baa2; rating for commercial paper unchanged at Prime-2; Baa2 rating assignment to debt issued pursuant to obligor exchange;

Cigna Holding Company -- senior unsecured debt rating affirmed at Baa2; provisional senior unsecured debt shelf and MTN program affirmed at (P)Baa2; provisional subordinated debt shelf affirmed at (P)Baa3; provisional junior subordinated debt shelf affirmed at (P)Baa3; provisional preferred stock shelf affirmed at (P)Ba1; rating for commercial paper unchanged at Prime-2;

Connecticut General Life Insurance Company -- insurance financial strength rating affirmed at A2;

Life Insurance Company of North America -- insurance financial strength rating affirmed at A2;

Cigna Health and Life Insurance Company -- insurance financial strength rating affirmed at A2.

The outlooks for all the entities listed above are stable.

Cigna Corporation (Cigna) is a global health care services organization headquartered in Connecticut. Through its subsidiaries, the company provides health care and related benefits, with the majority offered through employers and other groups. In addition to health insurance, Cigna offers related specialty health care products as well as group disability, life and accident insurance. With the acquisition of ESI, Cigna Corporation is also a leader in the pharmacy benefits management space. As of June 30, 2019, Cigna had approximately 17,000 medical members in its health insurance segment and 3,000 clients in and 75 million members in its pharmacy benefits segment.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations.

The principal methodology used in these ratings was US Health Insurance Companies published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Dean Ungar, CFA
VP-Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Scott Robinson, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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