Humana Inc.’s (HUM) latest debt issuance has received a debt rating of “bbb-” from credit rating agency, A.M. Best Company, Inc. The rating carries a stable outlook. The rating agency also affirmed the existing ratings of the company.
The latest $1.75 billion debt issued by Humana comprises 2.625% notes worth $400 million, 3.850% notes worth $600 million and 4.950% notes worth $750 million. The three set of notes are scheduled to expire on Oct 1, 2019, Oct 1, 2024 and Oct 1, 2044 respectively. Humana expects to generate $1.73 billion in net proceeds from the issuance. These proceeds will be deployed to redeem the $500 million 6.45% senior notes scheduled to expire on Jun 1, 2016, funding the latest $2 billion buyback program and for future share buybacks. The remaining proceeds will be utilized for general corporate purposes.
The issuance of lower coupon debt to redeem debt with higher coupon rate is viewed favourably as it is expected to lower the average coupon rate, thereby affecting interest expense positively. This seems a prudent approach, given the present low interest rate environment that will help the company procure funds for the future without increasing interest expenses significantly.
The debt to capital ratio for Humana is has been deteriorating over the past few years and is targeted between 25% and 30%. Although the ratio improved slightly year over year in 2013 and year-to-date in the first half of 2014, with the aforementioned debt issuance, the ratio is expected to deteriorate and reach nearly 30%.
Moody’s Investors Service, the credit rating arm of Moody’s Corporation (MCO), assigned a “Baa3” rating to the newly issued debt and affirmed the existing senior debt rating of Humana at “Baa3”. Moreover, the insurance financial strength rating (:IFS) of the operating subsidiaries of Humana, namely Humana Insurance Company (:HIC) and Humana Medical Plan, Inc. (:HMP) were affirmed at “A3”. All the ratings carried a stable outlook. The rating came on the back of Humana’s strong financial profile and significant market position.
Currently, Humana carries a Zacks Rank #3 (Hold). However, better-ranked stocks in the health maintenance organization industry that look attractive at current levels include UnitedHealth Group Incorporated (UNH) and Centene Corp. (CNC). Both these stocks have a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment