Moody’s Cuts PacifiCare Rating Over Debt Plan

PacifiCare Health Systems Inc.’s debt rating was cut by Moody’s Investors Service Friday after the managed care provider said it would issue new debt.

Moody’s said it lowered PacifiCare’s rating for senior unsecured debt to B1 from Ba3, and the outlook is negative. Moody’s said on Oct. 11 it was reviewing the Santa Ana company’s ratings.

PacifiCare said this week it will sell $500 million in senior notes and had received commitments from

lenders for $500 million in bank credit. The company last month cut its 2001 profit estimate to $1.65 to $1.75 a share from $2.94 after medical costs rose more than expected as PacifiCare renegotiated contracts with doctors and hospitals in California, home of about 60% of its 3.7 million customers.

Moody’s said the new financing may reduce PacifiCare’s debt, though the ratings agency said the company’s operating performance remains unpredictable. Rising medical costs may almost eliminate the company’s ability to generate dividends from its California health plans, Moody’s said.

PacifiCare’s stock rose 48 cents a share to $16.68 on Nasdaq.