Humana 2013 Annual Report Download - page 83

Credit Agreement
In July 2013, we amended and restated our 5-year $1.0 billion unsecured revolving credit agreement to,
among other things, extend its maturity to July 2018 from November 2016. Under the amended and restated
credit agreement, at our option, we can borrow on either a competitive advance basis or a revolving credit basis.
The revolving credit portion bears interest at either LIBOR plus a spread or the base rate plus a spread. The
LIBOR spread, currently 110 basis points, varies depending on our credit ratings ranging from 90.0 to 150.0
basis points. We also pay an annual facility fee regardless of utilization. This facility fee, currently 15.0 basis
points, may fluctuate between 10.0 and 25.0 basis points, depending upon our credit ratings. 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 effect 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 of $7.3 billion
at December 31, 2013 and a maximum leverage ratio of 3.0:1. We are in compliance with the financial
covenants, with actual net worth of $9.3 billion and actual leverage ratio of 1.0:1, as measured in accordance
with the credit agreement as of December 31, 2013. In addition, the credit agreement includes an uncommitted
$250 million incremental loan facility.
At December 31, 2013, we had no borrowings outstanding under the credit agreement. We have outstanding
letters of credit of $5 million issued under the credit agreement at December 31, 2013. No amounts have been
drawn on these letters of credit. Accordingly, as of December 31, 2013, we had $995 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.
Liquidity Requirements
We believe our cash balances, investment securities, operating cash flows, and funds available under our
credit agreement or from other public or private financing sources, taken together, provide adequate resources to
fund ongoing operating and regulatory requirements, acquisitions, future expansion opportunities, and capital
expenditures for at least the next twelve months, as well as to refinance or repay debt, and repurchase shares.
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, 2013 was BBB+
according to Standard & Poor’s Rating Services, or S&P, and Baa3 according to Moody’s Investors Services,
Inc., or Moody’s. A downgrade by S&P to BB+ or by Moody’s to Ba1 triggers an interest rate increase of 25
basis points with respect to $750 million of our senior notes. Successive one notch downgrades increase the
interest rate an additional 25 basis points, or annual interest expense by $2 million, up to a maximum 100 basis
points, or annual interest expense by $8 million.
In addition, we operate as a holding company in a highly regulated industry. Humana Inc., our parent
company, is dependent upon dividends and administrative expense reimbursements from our subsidiaries, most
of which are subject to regulatory restrictions. We continue to maintain significant levels of aggregate excess
statutory capital and surplus in our state-regulated insurance subsidiaries. Cash, cash equivalents, and short-term
investments at the parent company were $508 million at December 31, 2013 and $346 million at December 31,
2012 reflecting higher profit contribution from non-regulated businesses. Our use of operating cash flows derived
from our non-insurance subsidiaries, such as in our Healthcare Services segment, is generally not restricted by
Departments of Insurance. Our subsidiaries paid dividends to the parent of $967 million in 2013, $1.2 billion in
2012, and $1.1 billion in 2011. The decline in dividends to the parent in 2013 primarily was a result of higher
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