Humana 2004 Annual Report Download - page 88

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In June 2003, we recorded a deferred gain and received proceeds of $31.6 million in exchange for new swap
agreements discussed above related to our 7.25% senior notes. The corresponding deferred swap gain of $31.6
million is being amortized to reduce interest expense over the remaining term of the 7.25% senior notes.
Amortization of the deferred swap gain reduced interest expense $9.8 million in 2004 and $5.5 million in 2003.
Credit Agreement
On September 29, 2004, we replaced our existing credit agreements with a new 5-year $600 million
unsecured revolving credit agreement which will expire in September 2009. We previously maintained two
unsecured revolving credit agreements consisting of a $265 million, 4-year revolving credit agreement and a
$265 million, 364-day revolving credit agreement.
Under the agreement, at our option, we can borrow on either a competitive advance basis or a revolving
credit basis. The revolving credit portion of the agreement bears interest at either a fixed rate or floating rate
based on LIBOR plus a spread. The spread, which varies depending on our credit ratings, ranges from 50 to
112.5 basis points. We also pay an annual facility fee regardless of utilization. This facility fee, currently 15 basis
points, may fluctuate between 12.5 and 37.5 basis points, depending upon our credit ratings. In addition, a
utilization fee of 12.5 basis points is payable for any day in which borrowings under the facility exceeds 50% of
the total $600 million commitment. The competitive advance portion of any borrowings will bear interest at
market rates prevailing at the time of borrowing on either a fixed rate or a floating rate basis, at our option.
The 5-year $600 million credit agreement contains customary restrictive and financial covenants as well as
customary events of default, including financial covenants regarding the maintenance of net worth, minimum
interest coverage, and maximum leverage ratios. At December 31, 2004, we were in compliance with all
applicable financial covenant requirements. The terms of this credit agreement also includes standard provisions
related to conditions of borrowing, including a customary material adverse effect clause which could limit our
ability to borrow. We have not experienced a material adverse effect, and we know of no circumstances or events
which would be reasonably likely to result in a material adverse effect. We do not believe the material adverse
effect clause poses a material funding risk to Humana in the future.
We have other relationships, including financial advisory and banking, with some of the parties to the credit
agreement.
There was no balance outstanding under the credit agreement at December 31, 2004. The maximum amount
available for borrowing under the credit agreement was $594.6 million at December 31, 2004, reduced from $600
million due to securing letters of credit of $5.4 million under the credit agreement. No amounts have ever been
drawn on these letters of credit. On February 16, 2005, we paid approximately $450 million in cash for CarePlus
including approximately $32 million of statutory capital and surplus in excess of the minimum statutory
requirement as well as estimated transaction costs. We financed the transaction with $156 million of cash on
hand and $294 million of borrowings under our credit agreement. After the CarePlus transaction, we have $300.6
million of remaining borrowing capacity under the credit agreement.
Commercial Paper Program
We maintain and may issue short-term debt securities under a commercial paper program when market
conditions allow. The program is backed by our credit agreement described above. Aggregate borrowings under
both the credit agreement and commercial paper program generally will not exceed $600 million.
In connection with the credit arrangement, the conduit commercial paper program allowing indirect access
to the commercial paper market through a third party was cancelled.
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