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Rating Action:

Moody’s rates Humana’s senior notes

29 July 2021


$3 billion of new debt rated

New York , July 29, 2021 – Moody's Investors Service has assigned a Baa3 senior unsecured debt rating to Humana Inc.'s (Humana; NYSE: HUM) planned issuance of $3 billion of senior unsecured debt across three tenors. Net proceeds from the offering, together with $300 million cash on hand and borrowings under its $500 million delayed draw term loan, will be used to finance the approximately $5.7 billion purchase price of the Kindred at Home (Gentiva Health Services, Inc., dba Kindred at Home; B1) acquisition, which includes the assumption of approximately $1.9 billion of Kindred's indebtedness and is net of Humana's existing 40% equity interest, and to pay related fees and expenses. The Kindred acquisition, which is expected to close in Q3 2021, is subject to customary state and federal regulatory approvals.

The proposed issuance constitutes a takedown from Humana's shelf registration filed in March 2021. The outlook on Humana is unchanged at stable and is consistent with our April 28, 2021 affirmation of the ratings (https://www.moodys.com/research/--PR_1000004613 ).

RATINGS RATIONALE

By fully integrating Kindred into its provider and insurance offering, Humana will be better positioned to provide lower-cost, coordinated care in members' homes and reduce higher-cost hospital stays, readmissions, and emergency room utilization, particularly for those enrolled in Humana's Medicare Advantage (MA) programs. MA members are a vulnerable population from both a health and health cost perspective due to their advanced age. Further, Kindred's home health operation can reach 65% of Humana's members and to date has penetrated only a relatively small percentage of care episodes associated with Humana's members.

While the acquisition of the remaining stake in Kindred will increase leverage as measured by adjusted debt-to-capitalization (34% as of June 30, 2021) to above Moody's downgrade trigger of 40%, Moody's expects leverage to fall back below this level within 12 to 18 months of the expected Q3 2021 transaction close.

If Humana is successful in selling a majority stake in Kindred's hospice and community care operations, which Moody's considers the most likely scenario, and uses proceeds to pay down acquisition debt, the rating agency estimates that adjusted debt-to-capitalization would be on the low end of the 40% range by year-end 2021, and would return to pre-transaction levels around mid-2022, about 12 months from the expected Q3 2021 acquisition close.

In the event that Humana is not able to monetize Kindred's hospice and community care operations in the near term, Moody's estimates that adjusted debt-to-capitalization for Humana will rise to the mid-40% range by year-end 2021, but drifts back down to below 40% within 18 months of the expected Q3 2021 acquisition close. Moody's expects most of the deleveraging will be driven by organic capital growth as well as the positive impact on capital of the revaluation of Humana's existing 40% ownership stake in Kindred.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings may be upgraded if the following occur: 1) adjusted financial leverage and debt-to-EBITDA are reduced and sustained in line with pre-transaction levels; 2) EBITDA margins are sustained above 6%, 3) annual organic membership growth rate of at least 3%, and 4) a consolidated risk-based capital (RBC) ratio that is maintained at or above 225% of company action level (CAL).

However, Moody's said that the ratings may be downgraded if: 1) adjusted financial leverage is sustained above 40% due to additional debt-financed M&A and/or macro conditions that negatively impact Humana's earnings or capital; 2) the consolidated RBC ratio decreases to below 150% CAL, 3) a decline in Medicare Advantage membership.

Rating actions:

..Issuer: Humana Inc.:

…$1.5 billion Senior Unsecured Notes due 2023: Assigned at Baa3

…$750 million Senior Unsecured Notes due 2027: Assigned at Baa3

…$750 million Senior Unsecured Notes due 2032: Assigned at Baa3

The outlook on Humana Inc. is unchanged at stable.

Humana Inc., headquartered in Louisville, Kentucky, is a leading health care company serving approximately 13.3 million medical members (excluding 3.7 million standalone PDP members) as of June 30, 2021. For the last twelve months ended June 30, 2021, the company reported total revenues of approximately $78.7 billion with shareholders' equity as of June 30, 2021 of $14.8 billion.

With over $3 billion in annual revenue, Kindred at Home is a leading home health and hospice provider, employing approximately 43,000 caregivers and helping over 550,000 patients annually. Kindred has locations in 40 states.

The principal methodology used in these ratings was US Health Insurance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187569 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Stefan Kahandaliyanage, CFA
AVP-Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Scott Robinson, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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