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Rating Action:

Moody's upgrades AMERIGROUP (sr. debt to Baa2) following acquisition by WellPoint

Global Credit Research - 27 Dec 2012

New York, December 27, 2012 -- Moody's Investors Service has upgraded AMERIGROUP Corporation's (AMERIGROUP's) senior unsecured debt rating to Baa2 from Ba2 and the insurance financial strength (IFS) ratings of its operating subsidiaries (see list below) to A2 from Baa2 following the announcement that WellPoint, Inc. (WellPoint; NYSE: WLP, A2 for IFS, stable outlook) had completed its acquisition of AMERIGROUP and that AMERIGROUP had become a wholly-owned subsidiary of WellPoint. The outlook on these ratings is stable. In the same rating action, Moody's has withdrawn the Ba2 corporate family rating at AMERIGROUP, as well as the provisional ratings on AMERIGROUP's multiple seniority shelf which has been terminated.

This rating action concludes the review initiated on July 9, 2012 when WellPoint announced that it had entered into a definitive agreement to acquire AMERIGROUP.

RATINGS RATIONALE

Moody's stated that the upgrade of AMERIGROUP's IFS ratings to A2 from Baa2 and senior debt to Baa2 from Ba2 -- aligning the ratings with those of WellPoint -- reflects the strong level of implicit support WellPoint is expected to provide to AMERIGROUP given the reputational and strategic importance of the AMERIGROUP business to WellPoint, as well as the integration of AMERIGROUP's operations with WellPoint as one of its significant strategically important operating subsidiaries. The rating agency said that the additional membership, growth opportunities and Medicaid revenue from AMERIGROUP will strengthen WellPoint's overall business profile. Steve Zaharuk, Moody's Senior Vice President, commented: "The combination of AMERIGROUP's strong Medicaid platform with WellPoint's Medicare experience should also make the company very competitive as states begin the bidding process for the upcoming dual eligible business opportunities."

Moody's noted that although WellPoint decided not to assume or guarantee AMERIGROUP's outstanding 7.5% senior notes due in 2019, the parent company just recently announced its intent to redeem these notes within the next 30 days.

Moody's indicated that WellPoint's and AMERIGROUP's ratings could be upgraded if: 1) EBITDA margins rise above 8% with EBITDA coverage of at least 10 times, 2) consolidated NAIC RBC ratio is maintained at or above 275% of company action level (CAL), 3) overall annual medical membership growth is 2% or more, and 4) financial leverage is brought down to at least 35% on a sustained basis. However, the ratings could be downgraded if: 1) EBITDA earnings margins decline below 5%, 2) overall medical membership decreases by more than 5%, 3) financial leverage increases above 40%, or 4) the consolidated RBC ratio falls below 200% CAL.

The principal methodology used in this rating is Moody's Rating Methodology for U.S. Health Insurance Companies published in May 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The following ratings were upgraded with a stable outlook:

AMERIGROUP Texas, Inc. -- insurance financial strength rating to A2 from Baa2;

AMERIGROUP Maryland, Inc. -- insurance financial strength rating to A2 from Baa2;

AMERIGROUP Florida, Inc. -- insurance financial strength rating to A2 from Baa2;

AMERIGROUP New Jersey, Inc. -- insurance financial strength rating to A2 from Baa2.

AMERIGROUP Corporation -- senior unsecured debt rating to Baa2 from Ba2.

The following ratings were withdrawn:

AMERIGROUP Corporation -- corporate family rating at Ba2; provisional senior unsecured debt shelf rating at (P)Ba2; provisional subordinated debt shelf rating at (P)Ba3; provisional preferred stock shelf rating at (P)B1.

WellPoint, Inc., domiciled in Indiana, offers various group and individual medical products, including indemnity, preferred provider organization (PPO), point of service (POS) and health maintenance organization (HMO) plans. The company reported total revenues of approximately $46.2 billion for the first nine months of 2012. As of September 30, 2012, shareholders' equity was approximately $23.8 billion and medical membership (excluding BlueCard and Medicare Part D members) was approximately 28.4 million.

AMERIGROUP Corporation reported total revenue of $6.4 billion for the first nine months of 2012, with medical membership as of September 30, 2012 of approximately 2.7 million members. As of September 30, 2012 the company reported shareholders' equity of $1.4 billion.

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

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

Information sources used to prepare the rating are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Stephen Zaharuk
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's upgrades AMERIGROUP (sr. debt to Baa2) following acquisition by WellPoint
No Related Data.

 

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