A.M. Best Assigns Debt Ratings to Humana Inc.’s New Senior Unsecured Notes
A.M. Best has assigned a debt rating of “bbb-” to $1.75 billion of senior unsecured notes issued by Humana Inc. (Humana) (Louisville, KY)(NYSE:HUM) . The outlook assigned to the ratings is stable. The existing ratings of Humana and its subsidiaries remain unchanged.
The securities are being issued in three separate tranches consisting of 2.625% $400 million five-year notes due Oct. 1, 2019, 3.850% $600 million 10-year notes due Oct. 1, 2024, and 4.950% $750 million 30-year notes due Oct. 1, 2044. A portion of the proceeds from the issuance is being used to refinance the company’s 6.45% $500 million senior unsecured notes due June 1, 2016. The remaining proceeds are to be used for general corporate purposes, including its share repurchase that was authorized at $2 billion and putting more liquidity on the balance sheet.
This debt issuance will effectively increase Humana’s financial leverage to a level closer to its peer group and lower Humana’s average coupon rate and extend the duration of its debt portfolio. Over the past several years, the company’s performance has been strong, accreting to capital a substantial amount of its profits and strengthening debt leverage below expectations. Humana is taking advantage of the existing low interest rates, which could begin to increase over the next year. For Humana, debt-to-capital is targeted between 25% and 30%. After this transaction is completed, the ratio will be approximately 30%. The carrying value of goodwill was $3.7 billion and the ratio of debt to net tangible equity will be approximately 41%, while its interest coverage ratio was approximately 17.4 times. Cash and cash equivalents at June 30, 2014, was $1.6 billion. In September 2014, Humana expects to pay the federal government approximately $560 million for the annual health insurance fee.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright (c) 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
Sorry. No data so far.