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A.M. Best Assigns Rating to Humana's $500 Million Senior Notes


Wednesday, May 24, 2006 4:04 pm EDT



Public Company Information:

OLDWICK, N.J.--(BUSINESS WIRE)--May 24, 2006--A.M. Best Co. has assigned a debt rating of "bbb-" to the forthcoming $500 million 10 year senior unsecured notes to be issued by Humana Inc. (Humana) (Louisville, KY) (NYSE: HUM). The outlook for this rating is negative. The financial strength ratings assigned to the group's operating companies remain unchanged.

Humana will issue the securities from its existing universal shelf registration, which was filed on March 31, 2006. Humana is expected to use the net proceeds from the sale of these securities for repayment of outstanding balances under its credit facility, which was $200 million as of May 1, 2006; repayment of Humana's $300 million 7.25% senior notes maturing on August 1, 2006; and for general corporate purposes, including funding short-term cash needs.

As of December 31, 2005, Humana's debt-to-capital ratio remained stable in the 24%-25% range. A.M. Best expects Humana's debt-to-capital ratio to increase and be managed to a level of no more than 31% and for the ratio to then trend downward in 2007 with future equity growth through retained earnings.

Humana's business is highly concentrated in the government sector, which includes TRICARE, Medicare Advantage and Medicare Part D product lines. Revenue in this sector is expected to make up approximately two-thirds of Humana's total revenue. Humana's large membership growth in the Medicare Advantage and Medicare Part D products puts pressure on Humana's capitalization and will require significant capital contribution. Although this segment has been profitable for Humana, operating margins are relatively low and earnings rely heavily on volume.

Offsetting factors include Humana's good multi-regional presence, strong membership and revenue growth and continued improvement in the commercial segment operating performance. Humana's revenue growth in 2006 is expected to be very strong at over 50%. Additionally, continued improvement in the commercial segment performance is projected to contribute favorably to Humana's earnings.

For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

For current Best's Ratings, independent data and analysis on more than 1,050 health companies and A.M. Best groups, please visit www.ambest.com/health.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.


A.M. Best Co.
Public Relations:
Jim Peavy, 908-439-2200, ext. 5644
Rachelle Striegel, 908-439-2200, ext. 5378
Bridget Maehr, 908-439-2200, ext. 5321
Sally Rosen, 908-439-2200, ext. 5280