Cigna downgraded due to $24bn debt raise

Ratings agency Fitch has downgraded the Insurer Financial Strength (IFS) ratings of US health insurer Cigna Corporation’s operating subsidiaries to 'A' (Strong) from 'A+'.

In March 2018, Cigna entered into a definitive agreement to acquire pharmacy benefit manager Express Scripts for a cash and stock transaction of approximately $67 billion, including about $15 billion in Express Scripts' debt.

Fitch's rating action coincides with Cigna's financing of up to $24 billion in new debt related to the pending purchase of Express Scripts in a cash and stock transaction that is anticipated to close as early as fourth-quarter 2018. Upon close of the transaction, it is expected that all debt will be cross-guaranteed. Approximately $3 billion in debt is not mandatorily redeemable should this transaction fail to be completed.

While Fitch believes that the potential strategic benefits associated with the combination of these companies are significant, today's rating action reflects its concerns regarding the sharp rise in financial leverage.

Additional concerns include potential operational disruptions related to integration, uncertainty around achievement of profitability targets and material addition of goodwill.

Although the management plans to reduce financial leverage following the close of the transaction, Fitch does not anticipate that financial leverage will return to a level consistent with guidelines for Cigna's previous ratings within the 12 to 24 months’ time horizon typically associated with Fitch's ratings.