Magellan Health, Inc. -- Moody's continues rating review of Magellan Health

Magellan Health, Inc. — Moody’s continues rating review of Magellan Health


Announcement: Moody’s continues rating review of Magellan Health

Global Credit Research – 04 Jan 2021

New York, January 04, 2021 — Moody’s Investors Service (“Moody’s”) commented that the ratings of Magellan Health, Inc. (“Magellan”) remain under review for downgrade following the announcement that Centene Corporation (“Centene”) will acquire Magellan for approximately $2.2 billion in enterprise value. The ratings remaining under review for downgrade include the Ba1 Corporate Family Rating, the Ba1-PD Probability of Default Rating, and the Ba1 (LGD4) senior unsecured rating. The Speculative Grade Liquidity Rating is unchanged at SGL-1.

Moody’s placed Magellan’s ratings under review for downgrade on May 1, 2020 when Magellan announced the decision to sell its Magellan Complete Care business for $850 million plus closing adjustments. The sale of Magellan Complete Care closed today. Moody’s views the sale of Magellan Complete Care as credit negative. Despite the influx of cash, the divestiture has significantly reduced Magellan’s scale and diversity, and Magellan Complete Care was a core strategic focus area in recent years.

However, the pending acquisition of Magellan by Centene has positive credit implications based on Magellan becoming part of a larger, more diverse entity, albeit one with higher financial leverage and concentration in Medicaid managed care. Centene’s Corporate Family Rating is Ba1 and the outlook is stable. The acquisition is subject to regulatory reviews, approval by Magellan shareholders and other closing conditions, and is expected to close in the second half of 2021.

The review of Magellan’s ratings will focus on the company’s credit profile as part of Centene including the treatment of Magellan’s debt by Centene such as the evaluation of any support mechanisms. In the event the acquisition by Centene does not close as planned, the review will focus on Magellan’s stand-alone credit profile. This will reflect the competitive position of its remaining business units including the behavioral health and pharmacy benefit management businesses, as well as its capital structure and growth strategy.

Magellan’s Ba1 Corporate Family Rating (on review for downgrade) reflects its good scale and growth prospects in its two key segments: healthcare and pharmacy. The company offers a broad mix of services to a diverse customer group, with only one customer exceeding 10% of revenue. The credit profile also reflects relatively low financial leverage with gross debt/EBITDA likely to remain below 3.0x. Tempering these strengths, Magellan competes with much larger health insurance competitors and pharmacy benefits management companies. Other key risks include customer turnover and earnings volatility. The credit profile is also constrained by the uncertainty created by rapid industry consolidation involving healthcare insurers and providers.

Magellan’s SGL-1 Speculative Grade Liquidity reflects very good liquidity. This results from positive free cash flow, unrestricted cash and investments totaling over $100 million as of September 30, 2020, and availability under a $400 million revolving credit facility expiring in 2023. Magellan recently received proceeds from the sale of Magellan Complete Care totaling $850 million plus closing adjustments of $158 million.

Magellan Health, Inc. is a healthcare services company engaged in managing mental health and pharmacy benefits as well as other specialty areas of healthcare. Magellan’s customers include health plans and other managed care organizations, employers, labor unions, various military and governmental agencies and third-party administrators. Revenues from continuing operations for the first nine months of 2020 totaled approximately $3.4 billion.

The methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Michael Levesque, CFA Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Jessica Gladstone, CFA Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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