Humana Completes Aggregate $2.25 Billion Debt Offering

Rhea-AI Summary

Humana Inc. (NYSE: HUM) completes a $2.25 billion senior notes offering, consisting of 5.375 percent senior notes due 2031 and 5.750 percent senior notes due 2054. The net proceeds are expected to be around $2.226 billion for general corporate purposes, including debt repayment. The offering was managed by Citigroup, Goldman Sachs, Morgan Stanley, PNC Capital Markets, and Wells Fargo Securities.

Insights

Financial Analyst

The completion of Humana Inc.'s public offering of $2.25 billion in senior notes is a significant financial event that warrants a detailed analysis from a financial perspective. The issuance of these notes, with a substantial aggregate principal amount and varying maturities, indicates the company's strategic approach to capital management. The interest rates of 5.375 percent and 5.750 percent for the 2031 and 2054 maturities, respectively, reflect the current cost of borrowing for corporations and are likely influenced by prevailing market conditions as well as the company's creditworthiness.

Investors and stakeholders should note the intended use of proceeds for general corporate purposes, which may include the repayment of existing debt. This could potentially lead to an improved debt profile and credit ratings over time. However, the impact on the company's leverage and interest coverage ratios needs to be monitored. The involvement of high-profile financial institutions as joint book-running managers suggests a strong market interest and confidence in the offering. Overall, the capital raised could provide Humana with the financial flexibility to pursue strategic initiatives and manage liquidity needs.

Debt Market Analyst

From a debt market perspective, the issuance of senior notes by Humana Inc. is indicative of the company's leverage strategy and investor appetite for corporate bonds. The pricing of the notes at just below par suggests a balanced demand relative to the offered interest rates, which are competitive given the current interest rate environment. The long-term nature of the notes, with maturities extending to 2054, provides insight into investor confidence in the company's long-term stability and growth prospects.

It is also important to consider the yield spread between these notes and comparable government securities, as this will affect the attractiveness of the notes to fixed-income investors. The spread reflects the market's perception of the risk associated with Humana's debt. Additionally, the use of proceeds to potentially repay existing indebtedness can be a prudent move to manage the company's cost of capital, especially if it targets high-cost debt. However, investors should be aware of the refinancing risk associated with such a large issuance, particularly in an environment where interest rates may rise.

Corporate Strategist

Examining the broader strategic implications of Humana Inc.'s senior notes offering, it is evident that the company is proactively managing its capital structure. The decision to issue long-term debt provides Humana with the opportunity to lock in current interest rates, which could be advantageous if rates increase in the future. The flexibility gained from this capital infusion could support acquisitions, investments in technology and expansion into new markets, which are critical for maintaining competitive advantage in the healthcare industry.

Moreover, the allocation of funds for general corporate purposes, including the potential repayment of short-term borrowings, suggests a strategic move to optimize the company's balance sheet. Such financial prudence can enhance investor confidence and potentially lead to a more favorable perception of the company's stock. The strategic use of these funds will be closely watched by investors as it could have significant implications for Humana's growth trajectory and market positioning.

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Humana Inc. (the “company”) (NYSE: HUM) announced today the completion of its public offering of $2.25 billion in aggregate principal amount of senior notes. These senior notes are comprised of $1.25 billion of the company’s 5.375 percent senior notes, due 2031, at 99.940 percent of the principal amount, and $1.00 billion of the company’s 5.750 percent senior notes, due 2054, at 99.949 percent of the principal amount (collectively, the “Senior Notes Offerings”).

The company expects net proceeds from the Senior Notes Offerings will be approximately $2.226 billion after deducting underwriters’ discounts and estimated offering expenses. The company intends to use the net proceeds from the Senior Notes Offerings for general corporate purposes, which may include the repayment of existing indebtedness, including borrowings under its commercial paper program.

Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, PNC Capital Markets LLC and Wells Fargo Securities, LLC acted as active joint book-running managers for the Senior Notes Offerings.

The Senior Notes Offerings were made pursuant to an effective shelf registration statement (including a base prospectus) filed with the Securities and Exchange Commission (the “SEC”). The Senior Notes Offerings were made by means of a prospectus and related prospectus supplement, copies of which may be obtained by calling Citigroup Global Markets Inc. toll-free at (800) 831-9146, Goldman Sachs & Co. LLC toll-free at (866) 471-2526, Morgan Stanley & Co. LLC toll-free at (866) 718-1649, PNC Capital Markets LLC toll-free at (855) 881-0697 or Wells Fargo Securities, LLC toll-free at (800) 645-3751. An electronic copy of the registration statement and prospectus supplement, together with the base prospectus, is available on the SEC’s website at www.sec.gov.

This news release does not constitute an offer to sell or a solicitation of an offer to buy the securities described herein, nor shall there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

Cautionary Statement

This news release includes forward-looking statements regarding Humana within the meaning of the Private Securities Litigation Reform Act of 1995. When used in investor presentations, press releases, SEC filings, and in oral statements made by or with the approval of one of Humana’s executive officers, the words or phrases like “expects,” “believes,” “anticipates,” “intends,” “likely will result,” “estimates,” “projects” or variations of such words and similar expressions are intended to identify such forward-looking statements.

These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions, including, among other things, information set forth in the “Risk Factors” section of the company’s SEC filings, a summary of which includes but is not limited to the following:

• If Humana does not design and price its products properly and competitively, if the premiums Humana receives are insufficient to cover the cost of healthcare services delivered to its members, if the company is unable to implement clinical initiatives to provide a better healthcare experience for its members, lower costs and appropriately document the risk profile of its members, or if its estimates of benefits expense are inadequate, Humana’s profitability could be materially adversely affected. Humana estimates the costs of its benefit expense payments, and designs and prices its products accordingly, using actuarial methods and assumptions based upon, among other relevant factors, claim payment patterns, medical cost inflation, and historical developments such as claim inventory levels and claim receipt patterns. The company continually reviews estimates of future payments relating to benefit expenses for services incurred in the current and prior periods and makes necessary adjustments to its reserves, including premium deficiency reserves, where appropriate. These estimates involve extensive judgment, and have considerable inherent variability because they are extremely sensitive to changes in claim payment patterns and medical cost trends. Accordingly, Humana’s reserves may be insufficient.
• If Humana fails to effectively implement its operational and strategic initiatives, including its Medicare initiatives, which are of particular importance given the concentration of the company's revenues in these products, state-based contract strategy, the growth of its CenterWell business, and its integrated care delivery model, the company’s business may be materially adversely affected. In addition, there can be no assurances that the company will be successful in maintaining or improving its Star ratings in future years.
• If Humana, or the third-party service providers on which it relies, fails to properly maintain the integrity of its data, to strategically maintain existing or implement new information systems, to protect Humana’s proprietary rights to its systems, or to defend against cybersecurity attacks, contain such attacks when they occur, or prevent other privacy or data security incidents that result in security breaches that disrupt the company’s operations or in the unintentional dissemination of sensitive personal information or proprietary or confidential information, the company’s business may be materially adversely affected.
• Humana is involved in various legal actions, or disputes that could lead to legal actions (such as, among other things, provider contract disputes and qui tam litigation brought by individuals on behalf of the government), governmental and internal investigations, and routine internal review of business processes any of which, if resolved unfavorably to the company, could result in substantial monetary damages or changes in its business practices. Increased litigation and negative publicity could also increase the company’s cost of doing business.
• As a government contractor, Humana is exposed to risks that may materially adversely affect its business or its willingness or ability to participate in government healthcare programs including, among other things, loss of material government contracts; governmental audits and investigations; potential inadequacy of government determined payment rates; potential restrictions on profitability, including by comparison of profitability of the company’s Medicare Advantage business to non-Medicare Advantage business; or other changes in the governmental programs in which Humana participates. Changes to the risk adjustment model utilized by the Centers for Medicare and Medicaid Services (“CMS”) to adjust premiums paid to Medicare Advantage plans or retrospective recovery by CMS of previously paid premiums as a result of the final rule related to the risk adjustment data validation audit methodology published by CMS on January 30, 2023 (Final RADV Rule), which Humana believes fails to address adequately the statutory requirement of actuarial equivalence and violates the Administrative Procedure Act due to its failure to include a “Fee for Service Adjuster”, could have a material adverse effect on the company’s operating results, financial position and cash flows.
• Humana’s business activities are subject to substantial government regulation. New laws or regulations, or legislative, judicial, or regulatory changes in existing laws or regulations or their manner of application could increase the company's cost of doing business and have a material adverse effect on Humana’s results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting the company’s ability to expand into new markets, increasing the company’s medical and operating costs by, among other things, requiring a minimum benefit ratio on insured products, lowering the company’s Medicare payment rates and increasing the company’s expenses associated with a non-deductible health insurance industry fee and other assessments); the company’s financial position (including the company’s ability to maintain the value of its goodwill); and the company’s cash flows.
• Humana’s failure to manage acquisitions, divestitures and other significant transactions successfully may have a material adverse effect on the company’s results of operations, financial position, and cash flows.
• If Humana fails to develop and maintain satisfactory relationships with the providers of care to its members, the company’s business may be adversely affected.
• Humana faces significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to the company’s success, and its failure to do so could adversely affect the company’s businesses, operating results and/or future performance.
• Humana’s pharmacy business is highly competitive and subjects it to regulations and supply chain risks in addition to those the company faces with its core health benefits businesses.
• Changes in the prescription drug industry pricing benchmarks may adversely affect Humana’s financial performance.
• Humana’s ability to obtain funds from certain of its licensed subsidiaries is restricted by state insurance regulations.
• Downgrades in Humana’s debt ratings, should they occur, may adversely affect its business, results of operations, and financial condition.
• Volatility in the securities and credit markets, including changes in interest rates, may significantly and adversely affect the value of Humana’s investment portfolio and the investment income that Humana derives from this portfolio.

In making forward-looking statements, Humana is not undertaking to address or update them in future filings or communications regarding its business or results. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed herein may or may not occur. There also may be other risks that the company is unable to predict at this time. Any of these risks and uncertainties may cause actual results to differ materially from the results discussed in the forward-looking statements.

Humana advises investors to read the Form 10-K for the year ended December 31, 2023 as filed by the company with the SEC for further discussion both of the risks it faces and its historical performance.

About Humana

Humana Inc. (NYSE: HUM) is committed to putting health first - for our teammates, our customers, and our company. Through our Humana insurance services, and our CenterWell health care services, we make it easier for the millions of people we serve to achieve their best health - delivering the care and service they need, when they need it. These efforts are leading to a better quality of life for people with Medicare, Medicaid, families, individuals, military service personnel, and communities at large.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240313796958/en/

Lisa Stoner

Investor Relations

Humana Inc.

502-580-2652

e-mail: lstamper@humana.com

Mark Taylor

Corporate Communications

Humana Inc.

317-753-0345

e-mail: mtaylor108@humana.com

Source: Humana Inc.

FAQ

What is the total amount of the senior notes offering by Humana Inc. (NYSE: HUM)?

Humana Inc. (NYSE: HUM) completed a $2.25 billion senior notes offering.

What are the interest rates and maturity dates for the senior notes offered by Humana Inc. (NYSE: HUM)?

The senior notes include $1.25 billion of 5.375 percent senior notes due 2031 and $1.00 billion of 5.750 percent senior notes due 2054.

How much are the net proceeds expected to be from the senior notes offering by Humana Inc. (NYSE: HUM)?

Humana Inc. (NYSE: HUM) anticipates net proceeds of approximately $2.226 billion after deducting underwriters’ discounts and estimated offering expenses.

What are the intended uses of the net proceeds from the senior notes offering by Humana Inc. (NYSE: HUM)?

The net proceeds from the senior notes offering by Humana Inc. (NYSE: HUM) will be used for general corporate purposes, potentially including the repayment of existing indebtedness.

Who were the active joint book-running managers for the senior notes offerings by Humana Inc. (NYSE: HUM)?

Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, PNC Capital Markets LLC, and Wells Fargo Securities, LLC acted as active joint book-running managers for the senior notes offerings.