Fitch Rates Anthem's Planned Equity Units Issue 'BBB-(EXP)'

Fitch Ratings has assigned a 'BBB-(EXP)' rating to Anthem, Inc.'s (ANTM) planned issue of subordinated equity units due 2028.

Fitch anticipates ANTM using proceeds from the planned issuance for general corporate purposes, including re-purchasing a portion of its currently outstanding 2.75% convertible debentures due 2042. Given the convertible debentures' conversion price and ANTM's current share price, Fitch believes that ANTM will likely pay premiums when re-purchasing the 2.75% convertible debentures.

ANTM's planned issue will be in the form of equity units consisting of undivided beneficial ownership interests in subordinated notes maturing in 13 years and forward contracts under which, after three years, ANTM will issue common shares to the equity unit holders. The equity units also contain a clause upon which three years after their issue, the subordinated notes will be re-marketed as subordinated notes with a 10-year maturity.

Upon issue of the equity units, Fitch will include the principal amount of the units' subordinated notes as debt when calculating ANTM's financial leverage ratios. Upon issue of the common shares under the forward contract three years hence, Fitch will include the proceeds of the common shares as equity when calculating ANTM's financial leverage ratios.

KEY RATING DRIVERS

Fitch expects ANTM's financial leverage ratios to increase modestly as a result of the equity units' issuance given the above referenced treatment in ANTM's financial leverage ratio calculations and given Fitch's expectations that any re-purchases by ANTM of its currently outstanding 2.75% convertible debentures will likely require a premium. However, Fitch does not believe that the increases will be enough to affect ANTM's ratings. Fitch calculates ANTM's financial leverage ratio at March 31, 2015 at 41% and the company's ratio of debt to prior four quarters' EBITDA at 2.6x.

ANTM's ratings continue to reflect the company's strong competitive position, consistent financial performance and solid debt capabilities. The ratings also reflect ANTM's high financial leverage which has caused Fitch to apply non-standard notching that increases the number of notches between ANTM's 'BBB+' Issuer Default Rating (IDR) and the ratings of ANTM's insurance company subsidiaries.

RATING SENSITIVITIES

--Fitch would consider applying standard notching between ANTM's 'BBB+' IDR and the ratings on the company's insurance subsidiaries, resulting in a one-notch upgrade to the rating on ANTM's senior unsecured notes, if the company generated sustained debt-to-EBITDA ratio approximating 2.5x.

Rating sensitivities that could lead Fitch to upgrade all ratings are:

--Sustained debt-to-EBITDA and debt-to-capital ratios approximating 2.2x and 35%, respectively;

--Maintenance of organization-wide NAIC risk-based capital ratios (on a company action level basis) above 250%;

--Sustained EBITDA-based margins approximating 9%.

The following factors could lead to a downgrade of all ratings:

--Sustained debt-to-EBITDA or debt-to-capital ratios that exceed 3.0x and 40%, respectively;

--Organization-wide NAIC risk-based capital ratios (on a company action level basis) below 225%;

--sustained operating EBITDA-based interest coverage less than 6x or EBITDA-to-revenue ratios less than 6%;

--Acquisitions that Fitch believes carry inordinate integration risks or are aggressively financed;

--Material goodwill impairments that cause Fitch to question the value of one of ANTM's acquisitions;

--One or more of its subsidiaries' losing the right to use the Blue Cross or Blue Shield brands.

The following rating has been assigned:

Anthem, Inc.

--Subordinated equity unit rated 'BBB-(EXP)'.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sept. 4, 2014);

--'Health Insurance and Managed Care (U.S.) Sector Credit Factors' (Jan. 21, 2015).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Health Insurance and Managed Care (U.S.)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=855328

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984176

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