AM Best has assigned a Long-Term Issue Credit Rating (Long-Term IR) of “bbb-” (Good) to the recently announced $500 million, 5.7 % senior unsecured notes due March 13, 2026 and the $750 million, 5.5% senior unsecured notes due March 15, 2053, issued by Humana Inc. (Humana) (headquartered in Louisville, KY) [NYSE: HUM]. 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.

This issuance is expected to be used to replace the outstanding term loan, prefund debt maturities for later in 2023, and for general corporate purposes, including paying down outstanding commercial paper. AM Best anticipates that this debt issue will increase Humana’s financial leverage in the near term; this metric will moderate over the next two quarters as upcoming maturities are paid down. Humana’s financial leverage at Dec. 31, 2022 was approximately 42%, as measured by AM Best. Financial leverage at the holding company has been elevated based on financing for the Kindred at Home acquisition in 2021; this is inclusive of the sale of a 60% stake in Kindred At Home’s hospice operations, a portion of these proceeds were used to pay down an outstanding term loan in 2022.

On a longer-term basis, Humana plans to manage financial leverage at approximately 40%. Although Humana’s financial leverage has been elevated, earnings before interest and taxes (EBIT) interest coverage has remained strong at over 10 times. Financial flexibility includes the holding company cash and a $4 billion commercial paper program backed by its revolving credit agreement. Additionally, the organization has access to short-term borrowings from the Federal Home Loan Bank of Cincinnati through its subsidiary, Humana Insurance Company. Insurance subsidiary dividend capacity remains good based on favorable operating performance. Additionally, operating earnings from Humana’s non-regulated CenterWell business are growing and contributing favorably to the organization and debt service.

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