Humana 2007 Annual Report Download - page 58

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 each
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, 2007, we had $800 million of borrowings under the credit agreement outstanding at an
interest rate, which varies with LIBOR, of 5.30%. In addition, we have outstanding letters of credit of $2.0
million secured under the credit agreement. No amounts have ever been drawn on these letters of credit. As of
December 31, 2007, we had $198.0 million of remaining borrowing capacity under the credit agreement. We
have other customary, arms-length relationships, including financial advisory and banking, with some parties to
the credit agreement.
Other Long-Term Borrowings
Other long-term borrowings of $38.6 million at December 31, 2007 represent junior subordinated debt
assumed in the KMG acquisition of $36.1 million and financing for the renovation of a building of $2.5 million.
The junior subordinated debt, which is due in 2037, may be called by us in 2012 and bears a fixed annual interest
rate of 8.02% payable quarterly until 2012, and then payable at a floating rate based on LIBOR plus 310 basis
points. The debt associated with the building renovation bears interest at 2.00%, is collateralized by the building,
and is payable in various installments through 2014.
Shelf Registration
We have a universal shelf registration statement filed with the SEC which 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, 2007 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
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