Humana 2014 Annual Report Download - page 74

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reduced for the underwriters' discount and commission and offering expenses, were $1.73 billion. We used a portion
of the net proceeds to redeem the $500 million 6.45% senior unsecured notes as discussed below.
In October 2014, we redeemed the $500 million 6.45% senior unsecured notes due June 1, 2016, at 100% of the
principal amount plus applicable premium for early redemption and accrued and unpaid interest to the redemption date,
for cash totaling approximately $560 million. We recognized a loss on extinguishment of debt, included in interest
expense, of approximately $37 million in connection with the redemption of these notes.
Credit Agreement
Our 5-year $1.0 billion unsecured revolving credit agreement expires July 2018. Under the 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 to 150 basis points. We also pay an annual facility
fee regardless of utilization. This facility fee, currently 15 basis points, may fluctuate between 10 and 25 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 $7.8 billion at December 31, 2014
and a maximum leverage ratio of 3.0:1. We are in compliance with the financial covenants, with actual net worth of
$9.6 billion and actual leverage ratio of 1.4:1, as measured in accordance with the credit agreement as of December 31,
2014. In addition, the credit agreement includes an uncommitted $250 million incremental loan facility.
At December 31, 2014, we had no borrowings outstanding under the credit agreement. We have outstanding letters
of credit of $4 million issued under the credit agreement at December 31, 2014. No amounts have been drawn on these
letters of credit. Accordingly, as of December 31, 2014, we had $996 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.
Commercial Paper
In October 2014, we entered into a commercial paper program pursuant to which we may issue short-term, unsecured
commercial paper notes privately placed on a discount basis through certain broker dealers. Amounts available under
the program may be borrowed, repaid and re-borrowed from time to time, with the aggregate face or principal amounts
outstanding under the program at any time not to exceed $1 billion. The net proceeds of issuances have been and are
expected to be used for general corporate purposes, including to repurchase shares of our common stock. The maximum
principal amount of commercial paper borrowings outstanding at any one time during the year ended December 31,
2014 was $175 million. There were no outstanding borrowings at December 31, 2014.
Liquidity Requirements
We believe our cash balances, investment securities, operating cash flows, and funds available under our credit
agreement and our commercial paper program 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, 2014 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