What would happen if Gov. Chris Christie does, in fact, get his hands on some of the reserves of Horizon Blue Cross Blue Shield of New Jersey?What would happen if Gov. Chris Christie does, in fact, get his hands on some of the reserves of Horizon Blue Cross Blue Shield of New Jersey?
The company will have its credit rating downgraded. So says Standard & Poor, which knows a thing or two about downgrading credit ratings in New Jersey.
In a report released Thursday, S&P said: “We could lower our ratings in the next 12-24 months if weak earnings result in (earnings before interest and taxes return on revenue) of less than 1.2 percent for a sustained period or if capital adequacy falls below the ‘AA’ level from its current ‘AAA’ level.”
But, on the flip side, the agency said, “We could raise our ratings … if the company sustains margins above 2.5 percent to 3 percent while boosting capital redundancy at the ‘AAA’ level (greater than 15 percent).”
The same company gave New Jersey its 10th (of the current 11) credit downgrade on Christie’s watch.
The report Thursday took into account the ongoing battle with the governor, saying:
“In our view, Horizon BCBSNJ’s risk position is moderate reflecting its business concentration in a single state. We believe this poses additional risk of earnings and capital volatility since it exposes the company to regulatory and legal conditions in the state.
“For example, Horizon BCBSNJ is in a dispute over a request for funds by Gov. Chris Christie from the group’s capital reserves. Specifically, the governor has proposed establishing a permanent fund that Horizon BCBSNJ would pay into every year to cover drug treatment for the poor and uninsured. The company has not agreed to this proposal and believes the state does not have legal authority to extract funds without legislation.
“We have not included any capital outflows to the state in our base-case capital forecast due to our uncertainty regarding the ultimate outcome of this situation, but view any such event as a source of potential capital volatility.”