Humana 2009 Annual Report Download - page 103

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Credit Agreement
Our 5-year $1.0 billion unsecured revolving credit agreement expires in July 2011. Under the credit
agreement, at our option, we can borrow on either a revolving credit basis or a competitive advance basis. The
revolving credit portion bears interest at either a fixed rate or floating rate based on LIBOR plus a spread. The
spread, currently 50 basis points, varies depending on our credit ratings ranging from 27 to 80 basis points. We
also pay an annual facility fee regardless of utilization. This facility fee, currently 12.5 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 $1.0 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 based on LIBOR, at our option.
The terms of the credit agreement include standard provisions related to conditions of borrowing, including
a customary material adverse event clause which could limit our ability to borrow additional funds. In addition,
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. We are in compliance with the financial covenants.
At December 31, 2009, we had no borrowings outstanding under the credit agreement. We have outstanding
letters of credit of $3.5 million secured under the credit agreement. No amounts have ever been drawn on these
letters of credit. Accordingly, as of December 31, 2009, we had $996.5 million of remaining borrowing capacity
under the credit agreement, none of which would be restricted by our financial covenant compliance requirement.
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 $37.5 million at December 31, 2009 represent junior subordinated debt
assumed in the 2007 KMG acquisition of $36.1 million and financing for the renovation of a building of $1.4
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.
Fair Value
The fair value of our long-term debt was $1,596.4 million and $1,503.4 million at December 31, 2009 and
2008, respectively. The fair value of our long-term debt is determined based on quoted market prices for the
same or similar debt, or, if no quoted market prices are available, on the current rates estimated to be available to
use for debt with similar terms and remaining maturities.
12. DERIVATIVE FINANCIAL INSTRUMENTS
Upon issuance of our senior notes, we entered into interest-rate swap agreements with major financial
institutions to convert our interest-rate exposure on our senior notes from fixed rates to variable rates to more
closely align interest costs with floating interest rates received on our cash equivalents and investment securities.
Our swap agreements, which were considered derivative instruments, exchanged the fixed interest rate under all
our senior notes for a variable interest rate based on LIBOR. The notional amount of the swap agreements was
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