Humana 2006 Annual Report Download - page 60

basis or a revolving credit basis. The revolving credit portion 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 27 to 80
basis points. We also pay an annual facility fee regardless of utilization. This facility fee, currently 10 basis
points, may fluctuate between 8 and 20 basis points, depending upon our credit ratings. In addition, a utilization
fee of 10 basis points is payable for any day in which borrowings under the facility exceed 50% of the total $1
billion 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 credit agreement contains customary restrictive and financial covenants as well as customary events of
default, including financial covenants regarding the maintenance of a minimum level of net worth and a
maximum leverage ratio. The terms of the credit agreement also include standard provisions related to conditions
of borrowing, including a customary material adverse effect clause which could limit our ability to borrow
additional funds. 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. At this time, we do not believe the
material adverse effect clause poses a material funding risk to us.
At December 31, 2006, we had $450 million of borrowings under the credit agreement outstanding at an
interest rate of 5.73%. In addition, we have outstanding letters of credit of $3.4 million secured under the credit
agreement. No amounts have ever been drawn on these letters of credit. As of December 31, 2006, we had $546.6
million of remaining borrowing capacity under the credit agreement. We have other relationships, including
financial advisory and banking, with some parties to the credit agreement.
Other Long-Term Borrowings
Other long-term borrowings of $3.1 million at December 31, 2006 represent financing for the renovation of
a building, bear interest at 2% per annum, are collateralized by the building, and are payable in various
installments through 2014.
Shelf Registration
On March 31, 2006, we filed a universal shelf registration statement with the SEC. We are considered a
“well known seasoned issuer” under the Securities Offering Reform Act that became effective in December
2005. The universal shelf registration allows us to sell our debt or equity securities, from time to time, with the
amount, price and terms to be determined at the time of the sale. The net proceeds from any future sales of our
securities under the universal shelf registration may be used for our operations and for other general corporate
purposes, including repayment or refinancing of borrowings, working capital, capital expenditures, investments,
acquisitions, or the repurchase of our outstanding securities.
Liquidity Requirements
We believe our cash balances, investment securities, operating cash flows, access to debt and equity markets
and borrowing capacity, taken together, provide adequate resources to fund ongoing operating and regulatory
requirements, to fund future expansion opportunities and capital expenditures in the foreseeable future, and to
refinance debt as it matures.
Adverse changes in our credit rating may increase the rate of interest we pay and may impact the amount of
credit available to us in the future. Our investment-grade credit rating at December 31, 2006 was Baa3 according
to Moody’s Investors Services, Inc., or Moody’s, and BBB, according to Standard & Poor’s Ratings Services, or
S&P. A downgrade to Ba2 or lower by Moody’s and BB or lower by S&P would give the counterparties of three
of our interest rate swap agreements with a $300 million notional amount, the right, but not the obligation, to
cancel the interest rate swap agreement. If cancelled, we would pay or receive an amount based on the fair
market value of the swap agreement. Assuming these swap agreements had been cancelled on December 31,
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