Moody’s downgrades Aetna debt to Baa2

Moody's Investors Service said it downgraded Aetna Inc.'s senior unsecured debt rating to Baa2 from Baa1 and the insurance financial strength rating of its operating subsidiary, Aetna Life Insurance Co., to A2 from A1 following Aetna's issuance of $13 billion of senior unsecured debt in connection with the proposed acquisition of Humana Inc. (senior debt rating at Baa3).

The transaction is expected to close in the second half of 2016.

The outlook was changed to stable.

The downgrade concludes the review for downgrade announced in July 2015 and reflects the anticipated adverse financial impact of the Humana acquisition, Moody’s said. This includes the current $13 billion issuance of senior unsecured debt, as well as the anticipated assumption of about $3.8 billion of Humana's debt and an additional issuance of $3.2 billion of term loan or commercial paper at the close of the transaction.

According to the agency, after the close of the transaction, Aetna's financial profile would be weakened as a result of the significant projected increase in financial leverage, the large amount of goodwill associated with the purchase and the lower targeted NAIC risk-based capital (RBC) ratio going forward.

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