Fitch assigns fitch assigns bupa finance plcs hybrid final bbb rating

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(The following statement was released by the rating agency) LONDON, April 23 (Fitch) Fitch Ratings has assigned Bupa Finance Plc's (Bupa, 'A-'/Stable) fixed term subordinated notes a final 'BBB' rating. The final rating follows a review of final documentation which materially conforms to information received when the agency assigned the expected rating (see "Fitch Assigns Bupa Finance Plc's Hybrid Expected 'BBB(EXP)' Rating" dated 15 April 2013 at this site). The GBP500m hybrid notes, which mature in April 2023, will constitute direct, unsecured and subordinated obligations of Bupa. In the event of the winding-up of Bupa, the payment obligations are subordinated to the claims of Bupa's senior creditors, but will rank at least pari passu with all other subordinated obligations of Bupa which constitute lower Tier 2 capital (issued prior to Solvency II Implementation) or Tier 2 capital (issued on or after Solvency II implementation) and will rank in priority to the claims of holders of: (i) undated Tier 2 securities;(ii) all obligations of Bupa which constitute Tier 1 capital and (iii) all classes of Bupa's share capital. These features are reflected in the 'BBB' rating, which is two notches down from Bupa's 'A-' Long-term Issuer Default Rating (IDR), reflecting the notes' increased loss severity and heightened risk of non-performance relative to the senior obligations. Although the new hybrid bond legally ranks ahead of Bupa Finance Plc's 'BBB+' rated existing GBP330m subordinated debt it is effectively subordinated to it as the GBP330m hybrid is guaranteed by Bupa Insurance Ltd (BIL). The notes do not qualify for any equity credit as they do not meet Fitch's criteria with regards to Bupa having full discretion to defer coupons for at least five years. This approach is in accordance with Fitch's criteria, "Treatment and Notching of Hybrid in Nonfinancial Corporate and REIT Credit Analysis" dated 13 December 2012 at this site. KEY RATING DRIVERS Strong Debt Protection Measures: Fitch expects Bupa's lease-, hybrid-, restricted cash- and interest income-adjusted net debt/EBITDAR to increase in 2013 following its announcements to acquire Lux Med Group for GBP325.5m (completed in Q113), Dental Corporation for GBP244m plus GBP80m of debt, and the Aged Care operations of Innovative Care Ltd in Australia (completed in the first quarter 2013). However, the rise in leverage is expected to leave Bupa with some headroom within its current 'A-' rating. Increasing Diversification: The recent acquisitions will lead to a slight improvement in geographic and product diversification for Bupa. Commitment to Current Ratings: Bupa has a track record of managing its operations conservatively. It is committed to keeping credit protection measures in line with its 'A-' Long-Term IDR. BIL UK Market Leader: BIL is the UK's leading provider of medical insurance, with an estimated 41% market share at end-2011 (end-2010: 42%), ahead of AXA Healthcare Limited ('AA-'/Stable) with an estimated market share of 22%-23%. Penetration of private medical insurance in the UK remains low, at around 12% in 2011. International Presence: Bupa's ratings are supported by its strong market positions in its core private medical insurance markets of the UK, Australia and Spain. Furthermore, it benefits from geographical diversification in terms of markets, customers and fiscal incentives for private health insurance. Ownership of Care Homes: Bupa has an advantage over some of its major peers in that it owns about 80% of its care homes, and also has the financial power of the group. Bupa has an estimated 5% market share in the UK care homes market. Care Homes Require Investments: The care homes business on a standalone basis would be rated lower than the insurance business as it is geographically less diversified and the running of care homes generally requires significant ongoing investments. In Q412, Bupa refinanced its GBP0.9bn committed bank facility with a five-year GBP0.8bn committed bank facility. The company's cash position (cash in excess over the minimum capital requirement for the key insurance businesses) amounted to GBP559m at end-2011. RATING SENSITIVITIES Negative: Future developments that could lead to negative rating action include: A change in adjusted net debt/EBITDAR to around 2.0x on a sustainable basis and EBITDAR net fixed-charge cover of around 5.0x, for example as a result of acquisitions. Positive: Future developments that could lead to positive rating actions include: Adjusted net debt/EBITDAR below 1.0x on a sustainable basis and EBITDAR fixed charge cover of about 10x on a sustained basis. Contact: Principal Analyst Roma Patel Analyst +44 20 3530 1465 Supervisory Analyst Britta Holt Director +44 20 3530 1335 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chair Pablo Mazzini Senior Director +44 20 3530 1021 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.this site Additional information is available on this site. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable criteria, 'Corporate Rating Methodology', dated 8 August 2012, available at this site. Applicable Criteria and Related Research Corporate Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW. FITCHRATINGS. COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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