Fitch Ratings has downgraded Cigna Corp.'s issuer default rating to BBB from A- and also lowered the company's short-term issuer default rating to F3 from F2.
The rating agency further downgraded the insurer financial strength ratings to A (Strong) from A+ of Cigna's operating subsidiaries Connecticut General Life Insurance Co., Life Insurance Co. of North America, Cigna Life Insurance Co. of New York and Cigna Worldwide Insurance Co.
In addition, Fitch has downgraded Cigna's senior unsecured debt rating to BBB- from BBB+.
All ratings have been removed from Rating Watch Negative and have been assigned a stable outlook, Fitch said.
Fitch has assigned an issuer default rating of BBB to Halfmoon Parent Inc., which is at the moment a wholly owned subsidiary of Cigna, but will become the ultimate parent of the combined enterprise following completion of the transaction to acquire Express Scripts Holding Co.
Fitch's rating action coincides with Cigna's financing of up to $24 billion in new debt related to the pending purchase of Express Scripts in a cash and stock transaction that is expected to close in the fourth quarter. Upon close of the transaction, it is anticipated that all debt will be cross-guaranteed. About $3 billion in debt is not mandatorily redeemable should the deal fail to close.
Fitch said the likely strategic benefits linked with the combination of these companies are substantial, but said its downgrade of Cigna and subsidiaries reflects its concerns regarding the sharp rise in financial leverage.
At the close of the transaction, Fitch expects Cigna's financial leverage and debt-to-EBITDA ratios to be about 49% and 3.2x, respectively. Additionally, despite management's plan to reduce financial leverage following the close, the rating agency does not expect financial leverage to return to a level consistent with guidelines for Cigna's previous ratings within the next one to two years.