Last week, health insurer CIGNA Corp. (CI) raised $300 million of debt through the issue of senior notes. The notes carry a coupon rate of 5.125% with maturity in 2020.
The interest on the notes issued will be paid semi-annually on June 15 and December 15 each year.
The net proceeds of $295.8 million from the notes issue will be used for general corporate purpose along with paying of the existing debt. The notes will be denominated as senior unsecured obligations and will be treated at par with the existing senior unsecured notes.
BofA Merrill Lynch, a unit of Bank of America Inc. (BAC), Deutsche Bank Securities of Deutsche Bank (DB), and UBS Investment Bank, part of UBS AG (UBS) are the joint book running managers for the issue.
The issue carries an investment grade debt rating of “bbb” from A.M.Best, with a negative outlook.
The recent issue will raise the debt capital ratio to 35%, as compared with the existing 32%, reflecting above-average financial leverage. However, CIGNA’s balance sheet also stands solid with subsidiaries remaining well capitalized, a statutory surplus well in excess of the regulatory minimum and $700 million of cash in the holding company. This will cushion capitalization efforts along with funding growth, both internal as well as through acquisitions.
The recently passed Health Care Reform Act had a minimal impact on CIGNA due to its relatively small enrollment in Medicare Advantage and individual or small group, which has seen major spending cut. Federal subsidies to the tune of $132 billion, which are used to support them, are going to be phased out beginning in 2011. However, an overall uncertainty prevails with regard to the effects that certain conditions such as minimum medical cost ratio compliance and providing insurance to people with pre-exisiting disease, will have on the company as the law comes into effect gradually.
The interest on the notes issued will be paid semi-annually on June 15 and December 15 each year.
The net proceeds of $295.8 million from the notes issue will be used for general corporate purpose along with paying of the existing debt. The notes will be denominated as senior unsecured obligations and will be treated at par with the existing senior unsecured notes.
BofA Merrill Lynch, a unit of Bank of America Inc. (BAC), Deutsche Bank Securities of Deutsche Bank (DB), and UBS Investment Bank, part of UBS AG (UBS) are the joint book running managers for the issue.
The issue carries an investment grade debt rating of “bbb” from A.M.Best, with a negative outlook.
The recent issue will raise the debt capital ratio to 35%, as compared with the existing 32%, reflecting above-average financial leverage. However, CIGNA’s balance sheet also stands solid with subsidiaries remaining well capitalized, a statutory surplus well in excess of the regulatory minimum and $700 million of cash in the holding company. This will cushion capitalization efforts along with funding growth, both internal as well as through acquisitions.
The recently passed Health Care Reform Act had a minimal impact on CIGNA due to its relatively small enrollment in Medicare Advantage and individual or small group, which has seen major spending cut. Federal subsidies to the tune of $132 billion, which are used to support them, are going to be phased out beginning in 2011. However, an overall uncertainty prevails with regard to the effects that certain conditions such as minimum medical cost ratio compliance and providing insurance to people with pre-exisiting disease, will have on the company as the law comes into effect gradually.
During the first quarter, CIGNA earned $283 million or $1.02 per share, up from $208 million or 76 cents per share a year ago. Revenues rose 9% to $5.21 billion from $4.77 billion in the prior-year quarter. Performance was solid across all business segments. Management commented that it was on track to meet its financial goals for 2010. We believe that the company will benefit from improving enrollments and improving business performance as the economic recovery gathers pace.
Read the full analyst report on “CI”
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Read the full analyst report on “DB”
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