AM Best has assigned a Long-Term Issue Credit Rating (Long-Term IR) of “bbb-” (Good) to Humana Inc.’s (Humana) (headquartered in Louisville, KY) [NYSE:HUM] recently announced $500 million of 5.75% senior unsecured notes due March 1, 2028, and $750 million of 5.875% senior unsecured notes due March 1, 2033. The outlook assigned to these Credit Ratings (rating) is stable. Humana’s Long-Term Issuer Credit Rating of “bbb-” (Good), its existing Long-Term IRs and the ratings of its insurance subsidiaries are unchanged.
It is anticipated that the proceeds of this debt issue will be used for repayment of debt maturities coming due in December totaling $1 billion, as well as for general corporate purposes, including the repayment of outstanding short-term borrowings. As a result, AM Best expects that this issue will be neutral to Humana’s financial leverage. Financial leverage remains somewhat elevated at approximately 41%, as measured by AM Best, at third-quarter 2022, including the new debt issuances. Additionally, the financial leverage remains in line with industry peers. The total debt outstanding also is impacted by the 2021 debt issuance to finance the acquisition of Kindred at Home. On a long-term basis, Humana targets a more conservative debt-to-capital ratio of below 40%. This target is in line with its earlier announced plans to deleverage, using a portion of the proceeds from the sale of Kindred at Home’s hospice, which was completed in August 2021.
However, Humana’s financial flexibly remains strong with holding company cash and subsidiary dividend capacity, as well as its commercial paper program and revolving credit facilities totaling $4 billion. Furthermore, operating cash flow remains very good in 2022. Humana’s operating results have been favorable with material growth of premium and service revenues with fairly consistent operating margins and strong return-on-equity metrics. Coverage remains strong in the low double-digit range during 2022.
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