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Global Credit Research - 12 Aug 2010
$175 million secured bank facility rated
New York, August 12, 2010 -- Moody's Investors Service has assigned a B2 senior secured debt rating
to Medical Card System, Inc.'s (MCS's) $175
million five-year bank term loan. The proceeds of the issuance
will be used to fund a special dividend to stockholders, repay existing
indebtedness, and for general corporate purposes. In the
same rating action, Moody's has also assigned a B2 corporate
family rating to MCS and a Ba2 insurance financial strength (IFS) rating
to MCS's regulated operating subsidiary, MCS Advantage,
Inc. The outlook on the ratings is stable.
MCS is a privately-owned company incorporated and headquartered
in Puerto Rico. Through its three insurance operating subsidiaries,
the company offers insurance coverage and products to the residents of
Puerto Rico. MCS Advantage, Inc., the largest
operating subsidiary, offers Medicare Advantage Plan and Prescription
Drug Program insurance coverage pursuant to contracts with Centers for
Medicare and Medicaid Services (CMS). The other operating subsidiaries
provide comprehensive healthcare services under the Puerto Rico Health
Reform Program (Medicaid) and group life and health insurance products
for groups and individuals in the commercial market. During 2009,
approximately 53% of MCS's premiums were generated from its
Medicare Advantage business while 34% was from its Medicaid operations.
Moody's stated that the Ba2 IFS and B2 senior debt ratings reflect
the relatively small size of MCS and its geographic concentration,
with 100% of its revenues being generated in Puerto Rico.
The ratings also reflect the company's high concentration of business
in a handful of government contracts (i.e. Medicare and
Medicaid). The rating agency noted that the loss or impairment
of one of these contracts would have a considerable impact on the revenues
and earnings of the company.
In addition, Moody's pointed out that MCS's business
profile benefits from its leading market share in managed care in Puerto
Rico, measured by premiums, and its number one or number two
market position in each of its Medicare, Medicaid, and commercial
business segments, based on both premiums and membership.
The company also has one of the largest networks of physicians and facilities
in Puerto Rico, having contracts with over 13,000 primary
care physicians, specialty care physicians and ancillary physicians
and 66 hospitals.
The rating agency added that the ratings also reflect the negative impact
on financial flexibility of the $175 million bank term loan,
which will result in an expected debt to EBITDA ratio in a range between
1.6x and 2.0x and result in negative shareholders'
equity as a majority of the proceeds will be used to pay a dividend to
stockholders. While the company currently meets the regulatory
capital requirements in Puerto Rico, MCS's consolidated capital
adequacy on an NAIC risk-based capital (RBC) ratio basis is considered
by Moody's to be relatively weak at less than 100% of company
action level (CAL). It should be noted that in 2014 the regulatory
requirements in Puerto Rico will step up to the 100% CAL level.
Somewhat offsetting these considerations, however, is the
company's relatively solid after-tax profit margins,
which have averaged 2.7% over the last three years.
Moody's said its ratings are based on the expectation that there are no
changes or impairments in MCS's Medicare Advantage contracts with
the Centers for Medicare and Medicaid Services (CMS) or Puerto Rico Health
Reform Program contract with the Puerto Rico Health Insurance Administration.
Moody's stated that the ratings could move up if the consolidated RBC
ratio increases above 100% of company action level, if the
debt to EBIT ratio is sustained below 2x, if net earnings margins
were to be consistently in the 3% range, and if the company
increased the percentage of its earnings derived from commercial business.
However, if there were a loss of membership of 10% or more
in any year, if the company's consolidated RBC ratio falls
below 50% of company action level, if net margins fall below
1%, or if there is a loss or impairment of one of the government
contracts, then Moody's said the ratings could be moved down.
The following ratings were assigned with a stable outlook:
Medical Card System, Inc. -- B2 senior secured debt
rating; B2 corporate family rating;
MCS Advantage, Inc. -- Ba2 insurance financial strength
Medical Card System, Inc. is headquartered in San Juan,
Puerto Rico. As of December 31, 2009 MCS reported approximately
$114 million in shareholders' equity on a GAAP basis and
medical membership of approximately 693,000 (excluding Medicare
Part D stand alone membership). For calendar year 2009 total revenues
were approximately $1.6 billion.
The principal methodology used in rating MCS was Moody's Rating Methodology
for U.S. Health Insurers, which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating MCS can also be found in the Rating
Methodologies sub-directory on Moody's website.
Moody's insurance financial strength ratings (IFSR) are opinions about
the ability of insurance companies to punctually pay senior policyholder
claims and obligations.
For more information, please visit our website at www.moodys.com/insurance.
Senior Vice President
Financial Institutions Group
Moody's Investors Service
MD - Insurance
Financial Institutions Group
Moody's Investors Service
Moody's Investors Service
Moody's rates Medical Card System's senior bank debt B2
250 Greenwich Street
New York, NY 10007
No Related Data.
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