Standard & Poor's Global Ratings has lowered its credit ratings on Humana and has raised its ratings for Aetna after the insurers announced they were ending their planned $37 billion merger.
Both are being removed from the firm's CreditWatch, where they were placed on July 21, 2016, when Aetna borrowed $10.2 billion to pay for the deal.
S&P said it would consider lowering the ratings of Aetna by one notch if Aetna does not repay the special mandatory redemption notes in March 2017, as the company said it would.
For both insurers, the outlook is stable, S&P said, reflecting the removal of the risk associated with the integration of the companies.
The stable outlook reflects S&P's expectation for limited change to their underlying stand-alone credit profile through 2018.
S&P downgraded Humana since it will not realize any revenue and earnings benefits that could have come from the merger.
Humana's long-term credit rating is being downgraded from A+ to BBB+, and its long-term credit and financial strength rating for its core subsidiaries is being downgraded from A+ to A.
Aetna's credit ratings are being upgraded from A-/A-2 to A/A-1 and its long-term credit and financial strength ratings on its core operating subsidiaries are being raised from A+ to AA-.
At the same time, S&P raised its long-term credit rating on holding company Aetna Health Holdings from A- to A.
"The upgrades reflect the anticipated reduction in financial risk associated with the mandatory repayment of a significant portion ($10.2 billion) of the debt issued in June 2016 to fund its planned acquisition of Humana Inc., which is expected to close by year-end 2016," said Joseph Marinucci S&P Global Ratings credit analyst.
Humana's strong stand-alone business risk profile reflects its strong competitive position, although it is concentrated in the government-sponsored Medicare Advantage and Medicare Part D product segments, S&P said.
Aetna's very strong stand-alone business risk profile reflects its very strong competitive position with significant product and geographic diversification and operating performance in the top quarter of rated health insurers, S&P said.
The ratings could be lowered or raised for Aetna and Humana based on earnings, a more aggressive financial policy, higher market shares, more profitable diversification, and other factors.
S&P said it foresees a limited upside for Aetna at this time, though that could change through an increase in business diversification, the adoption of a more-conservative financial policy, or other factors.
The ratings of Aetna Health Insurance Co. of Europe were not affected.
The ratings on Humana Health Plans of Puerto Rico, Humana Insurance of Puerto Rico and Kanawha Insurance Co. are unaffected, according to Marinucci.