Rating Agencies: UnitedHealth Operations Still Strong

UnitedHealth Group Inc. is facing serious compliance questions, but it still has strong earnings, a strong balance sheet, and a great mix of customers.

Analysts at Standard & Poor’s Ratings Services, New York, and the Chicago office of Fitch Ratings gave that assessment today in responses to the announcement that an independent review team hired by UnitedHealth Group Inc., Minnetonka, Minn., has found evidence that UnitedHealth may have assigned dates for stock option grants retroactively to allow holders to maximize profits.

Dr. William McGuire, the chairman, has given up his post as chairman, and the company’s general counsel and a board member named in the review team’s report have left the company.

The company board has appointed Stephen Hemsley, who has been the company’s president and chief operating officer, to take over McGuire’s chief executive officer title by Dec. 1.

The executive changes “will not have a critical bearing on the day-to-day operations,” S&P credit analyst Shellie Stoddard says in a statement about UnitedHealth. “We believe [UnitedHealth] will continue its strong track record in operational performance under CEO Stephen Hemsley, new independent board direction, and significant bench strength in senior management.”

But the findings of the review team “increase the potential for a significant restatement of prior-period earnings in connection with stock-option accounting, which could materially erode the quality of UnitedHealth’s capital,” S&P says. “The company and its accountants have yet to calculate the appropriate restatement if any for the stock-option plan, and an estimated range of outcomes is unknown.”

UnitedHealth has postponed filing some financial reports because of the stock option problems.

Until all of the firm’s SEC filings are up to date, UnitedHealth “leaves itself open to assertions of covenant default and possible unfavorable court interpretations, resulting in accelerated repayment of the debt security,” S&P warns.

But UnitedHealth’s subsidiaries appear to be doing well and should give the company a great deal of financial flexibility, S&P says.