Bankers Reserve Life Ins. Co. of Wisconsin — Moody’s affirms Centene’s ratings (sr at Ba1) following acquisition announcement; outlook stable

4 January 2021

<!DOCTYPE html> <html lang=”” xml:lang=””> <head> <title>/nwsys/www/images/PR_1000004037</title> <meta http-equiv=”Content-Type” content=”text/html; charset=UTF-8″/> <meta name=”generator” content=”pdftohtml 0.36″/> <meta name=”date” content=”2021-01-04T20:13:42+00:00″/> <style type=”text/css”> <!– .xflip { -moz-transform: scaleX(-1); -webkit-transform: scaleX(-1); -o-transform: scaleX(-1); transform: scaleX(-1); filter: fliph; } .yflip { -moz-transform: scaleY(-1); -webkit-transform: scaleY(-1); -o-transform: scaleY(-1); transform: scaleY(-1); filter: flipv; } .xyflip { -moz-transform: scaleX(-1) scaleY(-1); -webkit-transform: scaleX(-1) scaleY(-1); -o-transform: scaleX(-1) scaleY(-1); transform: scaleX(-1) scaleY(-1); filter: fliph + flipv; } –> </style> </head> <body bgcolor=”#A0A0A0″ vlink=”blue” link=”blue”> <!– Page 1 –> <style type=”text/css”> <!– p {margin: 0; padding: 0;} .ft00{font-size:18px;font-family:Times;color:#000000;} .ft01{font-size:18px;font-family:Times;color:#1257c7;} .ft02{font-size:14px;font-family:Times;color:#666666;} .ft03{font-size:13px;font-family:Times;color:#000000;} .ft04{font-size:13px;font-family:Times;color:#0d0c0c;} .ft05{font-size:13px;line-height:31px;font-family:Times;color:#0d0c0c;} .ft06{font-size:13px;line-height:30px;font-family:Times;color:#0d0c0c;} –> </style> <div id=”page1-div” style=”position:relative;width:918px;height:1188px;”> <img width=”918″ height=”1188″ src=”http://mco.acquiremedia.com/images/PR_1000004037001.png” alt=”background image”/> Rating Action: Moody’s affirms Centene’s ratings (sr at Ba1) following acquisition announcement; outlook stable 4 January 2021 Centene to acquire Magellan Health for $2.2 billion New York, January 4, 2021 – Moody’s Investors Service has affirmed Centene Corporation’s (Centene; NYSE: CNC) Ba1 senior unsecured debt rating and corporate family rating as well as the Baa1 insurance financial strength ratings of its six rated operating insurance subsidiaries. This follows the announcement of Centene’s agreement to acquire Magellan Health, Inc. (Magellan; Nasdaq: MGLN, Ba1 under review for downgrade) for $2.2 billion. The deal is expected to close in H2 2021 and Moody’s anticipates it will largely be financed with new senior debt and cash. The outlook on Centene and its rated insurance subsidiaries remains stable. RATINGS RATIONALE Moody’s ratings affirmation reflects the relatively modest impact of the proposed transaction on Centene’s leverage along with the incremental benefit to its capabilities and diversification. As of Q3 2020, Centene’s debt-to-capital ratio (with Moody’s lease adjustment) was 41.1% and debt- to-EBITDA 3.3x. Moody’s estimates that both these leverage metrics could increase modestly to approximately 44% and 3.6x, respectively. Furthermore, Moody’s anticipates a modest increase in goodwill, which would adversely impact the quality of capital. If Centene were to issue equity to de- lever, Moody’s would consider that credit positive. With approximately $4.6 billion in revenue along with Moody’s estimate of $150 – $175 million in EBITDA, Magellan is small compared to Centene with LTM revenue of $101.7 billion and EBITDA of $5.3 billion. But it brings leading capabilities in behavioral health and a niche position in the area of healthcare cost management to a diverse mix of customers, including health plans and other managed care organizations, employers, labor unions, the military and other government agencies. Magellan will help Centene control costs and further diversify its product offerings. Moody’s Ba1 senior unsecured debt rating for Centene and Baa1 insurance financial strength ratings of its operating subsidiaries reflect the company’s strong geographic diversity, its national market share leadership in Medicaid and individual market and a top six position in Medicare Advantage. It also reflects a track record of solid organic growth and adequate capitalization. These strengths are partly offset by its continued concentration in Medicaid (despite its improved diversification), its acquisitive nature with associated integration risk and high leverage. The coronavirus has not materially impacted Moody’s credit view of Centene although significant uncertainty remains amid a surge in infections even as the deployment of vaccines is now underway. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Moody’s could upgrade Centene and its insurance subsidiaries if the company meets the following drivers: 1) Moody’s adjusted financial leverage maintained at 40% or below with well-laddered maturities with Debt-to-EBITDA below 2.5x; 2) Risk-based capital (RBC) ratio maintained above 200% of company action level (CAL), and; 3) sustained overall organic membership growth of 3% or more annually and Medicare Advantage membership growth of 5% or more; 4) EBITDA margin maintained at 5.0% or higher. </div> <!– Page 2 –> <style type=”text/css”> <!– p {margin: 0; padding: 0;} .ft07{font-size:13px;font-family:Times;color:#1b62b7;} –> </style> <div id=”page2-div” style=”position:relative;width:918px;height:1188px;”> <img width=”918″ height=”1188″ src=”http://mco.acquiremedia.com/images/PR_1000004037002.png” alt=”background image”/> Conversely, Moody’s could downgrade Centene and its insurance subsidiaries if the company meets the following drivers: 1) RBC ratio below 175% of CAL; 2) EBITDA margins fall consistently below 3.5%; 3) membership declines of over 10% over the next two-to-three years, and; 4) financial leverage sustained above 45% with debt-to-EBITDA above 3.0x. LIST OF AFFECTED RATINGS The following ratings have been affirmed: Centene Corporation — senior unsecured debt rating at Ba1; corporate family rating at Ba1; senior unsecured debt shelf rating at (P)Ba1; subordinated debt shelf rating at (P)Ba2; preferred stock (cumulative and non-cumulative) shelf rating at (P)Ba3; Bankers Reserve Life Insurance Company of Wisconsin – insurance financial strength rating at Baa1; Coordinated Care Corp. Indiana, Inc. — insurance financial strength rating at Baa1; Health Net of California, Inc.– insurance financial strength rating at Baa1; MHS Health Wisconsin — insurance financial strength rating at Baa1; Peach State Health Plan, Inc. — insurance financial strength rating at Baa1; Superior HealthPlan, Inc. — insurance financial strength rating at Baa1. Outlook Actions: Centene Corporation — outlook remains stable; Bankers Reserve Life Insurance Company of Wisconsin — outlook remains stable; Coordinated Care Corp. Indiana, Inc. — outlook remains stable; Health Net of California, Inc.– outlook remains stable; MHS Health Wisconsin — outlook remains stable; Peach State Health Plan, Inc. — outlook remains stable; Superior HealthPlan, Inc. — outlook remains stable. Centene Corporation is headquartered in St. Louis, Missouri. As of September 30, 2020 the company reported LTM revenues of $101.7 billion, 20.5 million medical members and shareholders’ equity was $25.7 billion. The company operates in 50 states and 3 international markets. The principal methodology used in these ratings was US Health Insurance Companies Methodology published in November 2019 and available at https://www.moodys.com/ researchdocumentcontentpage.aspx?docid=PBC_1187569 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology. REGULATORY DISCLOSURES For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/ researchdocumentcontentpage.aspx?docid=PBC_79004 . </div> <!– Page 3 –> <style type=”text/css”> <!– p {margin: 0; padding: 0;}–> </style> <div id=”page3-div” style=”position:relative;width:918px;height:1188px;”> <img width=”918″ height=”1188″ src=”http://mco.acquiremedia.com/images/PR_1000004037003.png” alt=”background image”/> For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity. The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure. These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx? docid=PBC_1243406 . The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com. The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. 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Bankers Reserve Life Ins. Co. of Wisconsin — Moody’s affirms Centene’s ratings (sr at Ba1) following acquisition announcement; outlook stable – Yahoo Finance

4 January 2021

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