Standard & Poor's Ratings Service maintained its ratings on health insurer Cigna Corp. after the company agreed to buy HealthSpring Inc., and said it expects to upgrade HealthSpring's ratings after the deal closes.
S&P said the deal makes sense for Cigna because it expands its Medicare Advantage and Medicare prescription drug plan businesses. While Cigna is taking on more debt as part of the $3.8 billion deal, the firm expects Cigna to reduce its debt quickly in 2012 and 2013. Standard & Poor's has a "BBB" rating on Cigna's credit, which is investment grade, two notches above non-investment grade or "junk" status.
Standard & Poor's rates HealthSpring's credit at "BB-." That rating is three notches below investment grade. It said it will probably upgrade that rating after the sale closes. The companies expect that to happen in the first half of 2012.
Cigna is based in Bloomfield, Conn., and HealthSpring is headquartered in Nashville, Tenn. Cigna has about 45,000 Medicare Advantage customers, while HealthSpring has about 340,000 and another 800,000 Medicare prescription drug plan members. HealthSpring itself acquired Medicare Advantage plan operator Bravo Health for $545 million in 2010.
Shares of Cigna gained 25 cents to $44.95 in afternoon trading, while HealthSpring stock jumped $13.59, or 33.8 percent, to $53.75.