A.M. Best Assigns Rating to Coventry Health Care, Inc.'s Senior Unsecured Notes.

OLDWICK, N.J. -- A.M. Best Co. has assigned a debt rating of "bb+" to Coventry Health Care, Inc.'s (Coventry) (Bethesda, MD) (NYSE:CVH) $400 million 5.95% senior unsecured notes, which will mature in 2017. The rating outlook is positive. Coventry's and its subsidiaries' financial strength, issuer credit and remaining debt ratings are unchanged.

The proceeds will be used to replace the recently redeemed higher rate notes, finance the Concentra Workers' Compensation Managed Care Services (Concentra) acquisition announced on February 8, 2007 and for share repurchase. Coventry redeemed all $170.5 million 8.5% senior notes due 2012 on February 15, 2007. The all cash transaction, valued at $387.5 million, is expected to close in April 2007. In addition, Coventry repurchased shares totaling approximately $220 million in first quarter 2007.

As a result of this offering, Coventry's financial leverage is expected to increase from its current level of 20.5% to approximately 25%, which is within industry norms. Coventry generates sound financial returns and has strong liquidity with earnings before interest taxes, depreciation and amortization (EBITDA) coverage at approximately 18 times at year-end 2006. Coventry's financial flexibility is supported by good dividend capacity from its subsidiaries plus non-regulated cash flows from its First Health operations. Coventry's commitment to rationale pricing and stable margins has resulted in 11% growth in net earnings in 2006 and improved capitalization in the majority of its health plans.

Offsetting rating factors include health plans membership decline and increased goodwill exposure following the Concentra acquisition. Following membership losses on several highly competitive markets, Coventry's risk enrollment declined 2.6%, while overall membership experienced a 0.9% decrease as of December 31, 2006 compared to 2005. In addition, A.M. Best is concerned about Coventry's high goodwill exposure. As of year-end 2006, the ratio of goodwill and intangibles to total equity was just below 70%, and it is expected to be approximately 79% after the Concentra acquisition is completed.

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