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Fitch Removes Humana's Ratings from Rating Watch Positive; Affirms Ratings
February 14, 2017 / 8:23 PM / 10 months ago

Fitch Removes Humana's Ratings from Rating Watch Positive; Affirms Ratings

(The following statement was released by the rating agency) CHICAGO, February 14 (Fitch) Fitch Ratings has removed Humana Inc.'s (HUM) ratings from Rating Watch Positive and affirmed the 'BBB' ratings assigned to the company's senior notes and the 'A' Insurer Financial Strength (IFS) ratings assigned to certain HUM subsidiaries. The Rating Outlooks are Stable. The rating actions follow HUM's announcement that it and Aetna Inc. (AET) have agreed to terminate a merger agreement under which AET would have acquired HUM. HUM's ratings had been on Rating Watch Positive since July 6, 2015, following the company's announcement that it had entered into a definitive agreement under which it would be acquired by AET. KEY RATING DRIVERS The affirmations reflect Fitch's views that HUM's business and financial profiles will support the company's current ratings, notwithstanding HUM's inability to realize the rating benefits it would have derived from a combination with AET. Key considerations supporting HUM's ratings include the company's leading position in the Medicare Advantage (MA) market, expectations that HUM will manage its debt-to-capital and debt-to-EBITDA ratios to 30%-35% and 1.5x-2.0x, respectively, and will generate EBITDA-based margins in the 4%-7% range. RATING SENSITIVITIES Key rating sensitivities that could lead to rating upgrades include: --A reduction in industry-wide uncertainty derived from the current Congress' plans to repeal and replace the Affordable Care Act; --Profitable growth in HUM's commercial membership that reduces its reliance on MA membership to generate revenues and EBITDA. Absent a transformational transaction with another health insurer, Fitch believes that such growth would require several years to emerge; --A reduction in targeted and run-rate reported debt-to-capital ratios to 20%-25%; --An increase in targeted and run-rate organization-wide risk-based capital ratios to 250%; Key rating sensitivities that could lead to rating downgrades include: --An increase in targeted or sustained reported debt-to-capital ratios above 35%; --An increase in targeted or sustained reported debt-to-EBITDA ratios above 2x; --A reduction in targeted or sustained reported run-rate organization-wide risk-based capital ratios below 200%; --Sustained EBITDA-based margins below 4%. Fitch has affirmed the following: Humana, Inc. --Long-Term Issuer Default Rating (IDR) at 'BBB+'; Outlook Stable; --$500 million 7.2% senior unsecured notes due June 15, 2018 at 'BBB'; --$300 million 6.3% senior unsecured notes due Aug. 1, 2018 at 'BBB'; --$400 million 2.625% senior unsecured notes due Oct. 1, 2019 at 'BBB'; --$600 million 3.15% senior unsecured notes due Dec. 1, 2022 at 'BBB'; --$600 million 3.850% senior unsecured notes due Oct. 1, 2024 at 'BBB'; --$250 million 8.15% senior unsecured notes due June 15, 2038 at 'BBB'; --$400 million 4.625% senior unsecured notes due Dec. 1, 2042 at 'BBB'; --$750 million 4.950% senior unsecured notes due Oct. 1, 2044 at 'BBB'. The following companies' Insurer Financial Strength (IFS) rating at 'A' with a Stable Outlook : Humana Insurance Company Humana Medical Plan, Inc. Humana Health Plan, Inc. Humana Health Benefit Plan of Louisiana Careplus Health Plans, Inc. Contact: Primary Analyst Mark Rouck, CPA, CFA Senior Director +1-312-368-2085 Fitch Ratings, Inc. 70 W. Madison Street Chicago IL 60602 Secondary Analyst Bradley Ellis, CFA Director +1-312-368-2089 Committee Chairperson Jim Auden, CFA +1-312-368-3146 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available at Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1018990 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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