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TEXT-S&P keeps Medical Card System on watch negative
March 14, 2012 / 2:42 PM / 6 years ago

TEXT-S&P keeps Medical Card System on watch negative

March 14 - Overview	
     -- San Juan, Puerto Rico-based Medical Card System Inc. reported 	
third-quarter 2011 operating losses, which were significantly worse than 	
expectations.	
     -- In December 2011, the company announced a management 	
realignment--replacing several key executives, including the chief executive 	
officer--that will result in additional costs.	
     -- The ratings remain on CreditWatch with negative implications.	
     -- We will likely resolve the CreditWatch when year-end 2011 results are 	
available and will monitor if the company breaches any of its covenants.	
	
Rating Action	
On March 14, 2012, Standard & Poor's Rating Services said that it would keep 	
its 'BB-' long-term counterparty credit and financial strength ratings on 	
Medical Card System Inc.'s (MCS) operating companies and the 'B-' long-term 	
counterparty credit rating on MCS on CreditWatch with negative implications, 	
where they were initially placed Dec. 15, 2011.	
Rationale	
The CreditWatch placement followed the company's unexpected third-quarter 2011 	
operating losses and its recent announcement that it was replacing several key 	
executives, including the chief executive officer, with an interim management 	
team affiliated with the Gorman Health Group. We believe that both of these 	
events increase the probability of a covenant breach in the near term. The 	
third-quarter losses were mainly the result of increased claims activity in 	
the company's Medicare Advantage business. The company will likely only be 	
able to partially exclude the costs associated with the management realignment 	
from the covenant compliance calculation because of exclusion limits in the 	
calculation. However, the positive fourth-quarter seasonality that is 	
characteristic of the Puerto Rico health insurance marketplace could offset 	
the increased pressure on earnings.	
	
CreditWatch	
We will continue to monitor the company's operating performance, especially as 	
it regards covenant compliance. If the company breached any of its covenants 	
as of year-end 2011, we could lower the ratings by one notch. Conversely, if 	
the company were to avoid a covenant breach, we could remove the ratings from 	
CreditWatch with negative implications, contingent upon our view of expected 	
2012 operating performance.	
	
Related Criteria And Research	
     -- Holding Company Analysis, June, 11, 2009	
     -- Analysis Of Nonlife Insurance Operating Performance, April, 22, 2009 	
	
Ratings List	
Ratings Remain On CreditWatch	
	
Medical Card System Inc.	
 Counterparty Credit Rating	
  Local Currency                        B-/Watch Neg/--    	
 Senior Secured                         B-/Watch Neg       	
	
MCS Advantage Inc.	
MCS Life Insurance Co.	
MCS Health Management Options Inc.	
 Counterparty Credit Rating	
  Local Currency                        BB-/Watch Neg/--   	
 Financial Strength Rating	
  Local Currency                        BB-/Watch Neg/--   	
	
Complete ratings information is available to subscribers of RatingsDirect on 	
the Global Credit Portal at www.globalcreditportal.com. All ratings referenced 	
herein can be found on Standard & Poor's public Web site at 	
www.standardandpoors.com. Use the Ratings search box located in the left 	
column.

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