Fitch Ratings placed Express Scripts Holding Co.'s ratings on Negative Watch after health insurer Cigna Corp. agreed to acquire the pharmacy benefit manager in a $67 billion deal.
The deal is expected to be completed by Dec. 31.
Fitch expects the deal to be financed with an equal mix of cash and stock and a considerable amount of the cash portion to be funded with new debt. It also expects Cigna's consolidated financial leverage and debt/EBITDA ratios to weaken after the deal.
The rating agency expects that Cigna's senior unsecured debt, which is rated at BBB+, could be downgraded one to two notches after the deal closes.
Fitch said that if Cigna assumes Express Scripts' debt instead of refinancing it, the rating will depend on the nature of the deal and the agency's evaluation of the strength of the legal, operational and strategic ties between the companies.
The Negative Watch reflects the risk that a two-notch downgrade on Cigna's unsecured debt would match a one-notch downgrade on Express Scripts' unsecured debt if the ratings are equalized.
Fitch also stated that Express Scripts' BBB rating takes into account the company's large scale, strong cash flows on stable margins and efficient working capital.
