S&P affirms HealthSpring

Standard & Poor's said it affirmed its B+ counterparty credit rating on HealthSpring Inc.

The outlook remains stable.

The company has agreed to acquire Bravo Health Inc., another Medicare-focused health insurer, for $545 million in cash and will fund the transaction with a combination of unregulated cash, $100 million in borrowings under an amended existing credit facility and $400 million in new loans that it will establish simultaneously with transaction closing.

S&P believes that the acquisition will have a neutral effect on HealthSpring's credit profile despite the expected increase in debt leverage and that it could potentially improve the company's overall business profile, as Bravo adds good geographic diversification in regions entirely new to HealthSpring.

The speculative-grade rating on HealthSpring reflects rating weaknesses such as its very narrow product scope in Medicare programs, its limited historical geographic diversification, a slight capital deficiency at the regulated subsidiaries (based on S&P's capital model) and a large amount of intangibles relative to equity on the balance sheet, the agency said. In addition, S&P believes reduced government funding of the Medicare Advantage program over the next 10 years will likely pressure the company's long-term operating margins.

The agency considers HealthSpring's rating strengths to include its established market position in Medicare Advantage and Medicare Part D products; a successful, tightly managed coordinated care model that has controlled medical costs well historically; a good earnings profile based on current and historical operating margins; an above-average operating expense structure; and a conservative, liquid investment portfolio.

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