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.