OREANDA-NEWS. July 27, 2015. Fitch Ratings has placed Anthem Inc.'s (ANTM) ratings on Rating Watch Negative. The rating action follows today's announcement by ANTM that it has entered into a definitive agreement to acquire Cigna Corp. (CI) for cash and stock valued at approximately \\$49.1 billion. The acquisition is expected to close in the second half 2016.

KEY RATING DRIVERS

Today's rating action reflects the negative effect the acquisition will have on ANTM's financial leverage metrics and potential operational and earnings disruptions that could arise as ANTM integrates CI's from an operational and management perspective.

Fitch expects to resolve the rating watch before ANTM accesses the debt markets to finance the debt-funded portion of the acquisition's cash consideration. Assuming the acquisition proceeds along terms that follow those announced today, Fitch would expect to downgrade the ratings by one notch or to affirm the ratings, most likely with a Negative Rating Outlook. Key factors in this decision will be balancing the ratings impact of the deterioration in ANTM's financial leverage metrics and the potential for disruptive integration issues with the enhanced market positon and size/scale benefits the acquisition brings. Fitch rates ANTM's senior unsecured notes 'BBB' and the Insurer Financial Strength ratings of certain ANTM subsidiaries 'A+'.

ANTM's proposal calls for 55%, or roughly \\$27 billion, of the consideration to be paid to CI's shareholders in the form of cash. Fitch expects the majority of this cash to be raised through new debt issuance. At March 31, 2015, ANTM maintained \\$2.8 billion of holding company cash and investments and had \\$15.8 billion of debt outstanding.

Fitch currently estimates that ANTM's post-close debt-to-EBITDA ratio, including CI's EBITDA on a pro-forma basis, will approximate 3.8x and that the company's post-close debt-to-capital ratio will approximate 49%. Fitch estimates that through a combination of retaining earnings, paying down debt and reducing share repurchases, ANTM's debt-to-EBITDA ratio will be 2.7x to 3.2x and the company's debt-to-capital ratio will be in the low-to-mid 40% range 24 months after the acquisition's close. These ratios exceed Fitch's rating category guidelines for 'BBB' category rated senior debt. At March 31, 2015, ANTM's reported debt-to-EBITDA and debt-to-capital ratios were 2.5x and 40% respectively

Fitch believes that the combined ANTM - CI organization will benefit from enhanced size and scale, a characteristic that Fitch has viewed as increasingly important given pressures placed on profit margins by the Affordable Care Act. Ranked by membership, ANTM's post-close 53.2 million medical members would make it the largest health insurer in the U.S.

RATINGS SENSITIVITES

Due in part to the fluid nature of ANTM's and CI's negotiations that resulted in today's agreement between the companies, Fitch plans to resolve the rating watch after completing more detailed discussions with ANTM regarding its financing, operating and integration plans for CI.

Fitch anticipates these discussions focusing on its estimates of ANTM's post-acquisition financial leverage metrics including key assumptions around debt-repayment, and share repurchase plans, how ANTM expects to realize the synergy-related expense savings it has disclosed and expected post-acquisition goodwill balances and earnings levels. Fitch also anticipates the discussions providing more insight into how ANTM believes the acquisition enhances the organization's market position beyond the obvious size/scale benefits.

Finally, Fitch hopes to discuss ANTM's post-acquisition plans for managing various branding and operational requirements derived from its licensing agreements with the Blue Cross and Blue Shield Association and any specific geographic or business line market share concentration issues that could arise from required regulatory reviews and how ATNM would plan to address those issues.

Fitch has placed the following ratings on Rating Watch Negative:

Anthem, Inc.
--Long-term IDR 'BBB+';

The following 'BBB' rated notes:

--1.250% senior notes due 9/10/2015;
--5.250% senior notes due 1/15/2016;
--2.375% senior notes due 2/15/2017;
--5.875% senior notes due 6/15/2017;
--1.875% senior notes due 1/15/2018;
--2.300% senior notes due 7/15/2018;
--7.000% senior notes due 2/15/2019;
--2.250% senior notes due 8/15/2019:
--4.350% senior notes due 8/15/2020;
--3.700% senior notes due 8/15/2021;
--3.125% senior notes due 5/15/2022;
--3.300% senior notes due 1/15/2023;
--3.500% senior notes due 8/15/2024
--5.950% senior notes due 12/15/2034;
--5.850% senior notes due 1/15/2036;
--6.375% senior notes due 6/15/2037;
--5.800% senior notes due 8/15/2040;
--4.625% senior notes due 5/15/2042;
--2.750% senior convertible debentures due 10/15/2042;
--4.650% senior notes due 1/15/2043;
--4.65% senior notes due 8/15/2044;
--5.100% senior notes due 1/15/2044;
--4.850% senior notes due 8/15/2054;

--Short-term IDR 'F2';
--\\$2.5 billion commercial paper program 'F2'.

Anthem Holding Corp.
--Long-term IDR 'BBB+'.

Anthem Insurance Companies, Inc.
--Long-term IDR 'A';
--9.000% surplus notes due 4/1/2027 'A-'
--Insurer financial strength rating (IFS) 'A+'.

The 'A+' IFS ratings of the following subsidiaries:

Anthem Blue Cross Life & Health Insurance Company
Anthem Health Plans, Inc.
Anthem Health Plans of Kentucky, Inc.
Anthem Health Plans of Maine, Inc.
Anthem Health Plans of New Hampshire, Inc.
Anthem Health Plans of Virginia, Inc.
Blue Cross of California
Blue Cross and Blue Shield of Georgia, Inc.
Blue Cross Blue Shield Healthcare Plan of Georgia, Inc.
Community Insurance Company, Inc.
Empire HealthChoice HMO, Inc.
Empire HealthChoice Assurance, Inc.
HealthKeepers, Inc.
Healthy Alliance Life Insurance Company
HMO Missouri, Inc.
Matthew Thornton Health Plan, Inc.
Rocky Mountain Hospital & Medical Service, Inc.

Contact:

Primary Analyst
Mark Rouck, CPA, CFA
Senior Director
+1-312-368-2085
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602

Secondary Analyst
Brad Ellis, CFA
Director
+1-312-368-3158

Committee Chairperson
Jim Auden, CFA
Managing Director
+1-312-368-3146

Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com.

Additional information is available on www.fitchratings.com.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (July 14, 2015).