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Fitch downgrades Express Scripts following closure of $67B merger with Cigna

Fitch Ratings downgraded Express Scripts Holding Co.'s issuer default rating to BBB- from BBB following completion of the $67 billion acquisition by Cigna Corp.

The rating agency assigned a stable outlook to Saint Louis, Mo.-based pharmacy benefit manager Express Scripts.

Fitch said the downgrade reflects the alignment of Express Scripts' ratings with the senior unsecured debt rating of its new parent Cigna. The ratings agency had downgraded Cigna's senior unsecured debt ratings to BBB- from BBB+ in September and had indicated that upon completion of the merger Express Scripts' ratings would be equalized with Cigna.

Fitch said the ratings reflect Express Scripts' strong position as the largest pharmacy benefit manager in the U.S. and consistent free cash flow generation.

The agency expects Express Scripts to face a revenue loss of about $20 billion starting 2020 following Anthem Inc.'s decision to not renew its contract with the pharmacy benefits manager. The gross debt-to-EBITDA ratio — a measure of a company's ability to pay off debt — is expected to remain below 2.3x through 2021.

Fitch said it could upgrade Express Scripts if the integration between the companies is successful, including profit margins for the stand-alone entity and the consolidated business, and if the debt to EBITDA ratio at Cigna is maintained below 2.3x or if financial leverage — the presence of debt in a company's capital structure — is below 40%.

The rating agency said it could downgrade the ratings if the two companies fail to integrate successfully and if the debt to EBITDA ratio at Cigna goes above 3.0x.