OREANDA-NEWS. July 06, 2015. Fitch Ratings has placed Health Net Inc.'s ratings on Rating Watch Negative (RWN). The rating action follows Health Net's announcement that it has entered into a definite agreement under which it will be acquired by Centene Corporation (Centene). A full list of rating actions is below.

KEY RATING DRIVERS
The RWN reflects Fitch's view that key financial leverage metrics will deteriorate after the acquisition. Centene has arranged USD2.7bn of debt financing to fund the cash portion of the acquisition.

Fitch projects that Centene's post-acquisition debt-to-EBITDA and financial leverage ratios will be approximately 4.0x and 40%, respectively. Fitch's EBITDA calculation was based on earnings for the most recent four quarters at each company. At 31 March 2015, Health Net's debt-to-EBITDA and financial leverage ratios were 2.3x and 26%, respectively. Fitch also expects that Centene's near-term post acquisition EBITDA-based interest coverage ratio will likely deteriorate relative to Health Net's recent run-rate interest coverage ratios, which were approximately 10x.

The agency believes that the combined Health Net - Centene organisation's market positions and size/scale characteristics will be enhanced through a combination of the companies. Balanced against the negative financial leverage implications of the proposed transaction, this enhancement will be a key factor in determining the final ratings.

RATING SENSITIVITIES
Fitch will provide additional comment on the RWN after a further review of Centene's operating fundamentals and financial position. Fitch intends to pursue discussions with management on strategy, financial targets and integration plans for the combined entity.

Fitch has placed the following ratings on RWN:

Health Net Inc.
--Long-term IDR at 'BB+';
--6.375% senior notes due June 2017 at 'BB'

Health Net Of California, Inc
Health Net of Arizona, Inc
Health Net Health Plan of Oregon, Inc
--IFS at 'BBB'