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 $750 million of 3.70% senior unsecured notes due 2029. The outlook assigned to the Credit Rating (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 issue will be used for general corporate purposes including debt maturities and 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 elevated at approximately 44%, as measured by AM Best, at year-end 2021 due to debt issuances in 2021 to finance the acquisition of Kindred at Home. On a long-term basis, Humana targets a more conservative debt-to-capital ratio of 35%. Humana announced plans to deleverage by divesting of Kindred at Home’s hospice and person care services business via an initial public offering (IPO) after close of the transaction, which was completed in August 2021. This has not occurred to date and absent the IPO, financial leverage will decline only through equity growth or retirement of debt. However, Humana’s financial flexibly remains good 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 at $2.3 billion in 2021. 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 digits.

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