CHICAGO, May 10 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has
reaffirmed its 'A' (Single-A) senior debt rating on UnitedHealth Group Inc.
(UNH), formerly United Healthcare Corporation. At the same time, DCR has
reaffirmed its 'D-1' (D-One) rating on UNH's commercial paper and extendible
commercial notes programs. The rating action affects approximately $1.0
billion of debt and commercial paper outstanding. The Outlook for the
assigned ratings is Stable.
The ratings reflect the inherent strength and diversity of UNH's health
services operations, good balance sheet fundamentals, strong earnings track
record and cash flow-generating power. The ratings also consider difficult
conditions in several core markets driven by price competition,
higher-than-expected health care costs, and the evolving regulatory and
political environment impacting the health care business.
UNH is a national leader offering a variety of health and well-being
products and services. The company's strong franchise is supported by
well-established competitive positions in a number of major markets. A key
competitive strength enjoyed by UNH's health plans is the parent's large size
and local market focus, which provides the company significant leverage in
achieving unit cost reductions and gaining competitive reimbursement
arrangements with local health care providers. The national scope of UNH's
operations and broad product portfolio provide a unique competitive advantage
in the large, multi-site employer market. UNH is an industry leader in
open-access products and is well positioned to meet the increased market
demand for less-restrictive managed care products.
UNH's operating performance rebounded significantly in 1999 in line with
DCR's expectations following underperformance in 1998 due to restructuring
charges and higher-than-expected medical costs in certain Medicare and other
health plan operations. DCR believes that UNH's strong operating performance
benefits from strong competitive positioning, effective medical and operating
expense management, strong information systems capabilities and disciplined
pricing.
Further, broad geographical diversification and a balanced portfolio of
guaranteed cost, shared-risk and fee-based products have contributed
significantly to the overall stability of UNH's operating performance. DCR
expects continued favorable operating trends in 2000, with pretax operating
margins in the 5.0-5.5 percent range.
UNH's good balance sheet fundamentals reflect the company's moderate
financial leverage (debt-to-total capital ratio of 20 percent at March 31,
2000), very strong liquidity and asset quality, and good capital adequacy.
DCR expects the company to maintain financial leverage in the 20-25 percent
range. UNH's very strong liquidity profile is supported by very strong
operating cash flow (debt-to-EBITDA ratio of 0.9 times in 1999), excess
holding company cash and access to external financing sources. DCR expects
earnings-based interest coverage to be in excess of 15 times in 2000. UNH's
active share repurchase program is expected to be managed in line with DCR's
expectations for financial leverage.
For additional information, visit DCR's Web site at http://www.dcrco.com
(Quick Search: United HealthCare). DCR's research is also available on
Bloomberg at DCR, FirstCall's BondCall Direct/Research Direct at
http://www.firstcall.com and Multex at http://www.multex.com, as well as
through other third-party providers.
SOURCE Duff & Phelps Credit Rating Co.
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Related links:
http://www.dcrco.com
http://www.multex.com http://www.firstcall.com
CONTACT:
Douglas L. Meyer, CFA, 312-368-2061,
meyer@dcrco.com; or Bradley S. Ellis, 312-368-2089,
ellis@dcrco.com, both of Duff & Phelps Credit Rating Co.
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