Humana Inc. -- Moody’s affirms Humana’s ratings (sr at Baa3) following Kindred acquisition announcement; outlook stable
Rating Action:
Moody’s affirms Humana’s ratings (sr at Baa3) following
Kindred acquisition announcement; outlook stable
28 April 2021
Humana to acquire remaining Kindred stake in a transaction valued at $5.7 billion
New York, April 28, 2021 – Moody's Investors Service has affirmed Humana Inc.’s (Humana; NYSE:
HUM) Baa3 senior unsecured debt rating as well as the A3 insurance financial strength ratings of its
two rated operating insurance subsidiaries. This follows Humana’s announcement of its agreement
to acquire the remaining 60% ownership interest of Kindred at Home (Gentiva Health Services,
Inc. (New), dba Kindred at Home; B1) currently held by its private equity partners. The outlook on
Humana and its rated insurance subsidiaries remains stable.
Moody’s expects Humana to fund the $5.7 billion transaction (net of Humana’s existing minority
ownership stake valued at $2.4 billion) through a combination of parent company cash, debt
financing, and a partial asset sale. Moody’s expects Humana to divest a majority stake in Kindred
at Home’s hospice and community care operations through a public listing or another potential
monetization transaction. The Kindred acquisition, which is expected to close in Q3 2021, is subject
to customary state and federal regulatory approvals.
RATINGS RATIONALE
We believe the strategic rationale for the acquisition is compelling. 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 is expected to increase leverage as
measured by adjusted debt-to-capitalization (34% as of December 31, 2020) 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.
Humana’s ratings are supported by its fundamental business profile, driven by strong organic
membership growth and profitability in the company’s MA business. Looking ahead to 2021 financial
performance, Moody’s expects continued robust enrollment growth, led by Humana’s market
leading MA franchise. Although there will be some negative impacts and uncertainty stemming from
Medicare risk adjustment, COVID costs, and the physician fee schedule increase, the rating agency
believes that they will be balanced, likely to the positive, by items including depressed non-COVID
utilization and underlying business growth.
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 greater than expected Kindred acquisition debt issuance, 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.
LIST OF AFFECTED RATINGS
The following ratings have been affirmed:
Humana Inc. -- senior unsecured debt at Baa3; provisional senior unsecured debt shelf at (P)Baa3;
provisional subordinated debt shelf at (P)Ba1; provisional preferred stock shelf at (P)Ba2; short-term
debt rating for commercial paper at Prime-3;
Humana Insurance Company -- insurance financial strength at A3;
Humana Medical Plan, Inc. -- insurance financial strength at A3.
Outlook Actions:
Humana Inc. -- outlook remains stable;
Humana Insurance Company -- outlook remains stable;
Humana Medical Plan, Inc. -- outlook remains stable.
Humana Inc., headquartered in Louisville, Kentucky, is a leading health care company serving
approximately 13.0 million medical members (excluding 3.9 million standalone PDP members) as of
December 31, 2020. For the year ended December 31, 2020, the company reported total revenues
of approximately $77.2 billion with shareholders' equity as of December 31, 2020 of $13.7 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_1263068
.
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
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their
licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT
OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS,
OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND
INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE
SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN
ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME
DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT.
SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR
INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED
BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK,
INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE
VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND
OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS
OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE
QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS
OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO
NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S
CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND
DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR
SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND
PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY
PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND
OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND
UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY
AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE,
HOLDING, OR SALE.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS
ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS
AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS,
ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT
DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER
PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT
LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR
OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED,
DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR
ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY
MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE
NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED
FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT
IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY’S from sources believed by it to be
accurate and reliable. Because of the possibility of human or mechanical error as well as other
factors, however, all information contained herein is provided “AS IS” without warranty of any kind.
MOODY'S adopts all necessary measures so that the information it uses in assigning a credit
rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when
appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot
in every instance independently verify or validate information received in the rating process or in
preparing its Publications.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents,
representatives, licensors and suppliers disclaim liability to any person or entity for any indirect,
special, consequential, or incidental losses or damages whatsoever arising from or in connection
with the information contained herein or the use of or inability to use any such information, even if
MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers
is advised in advance of the possibility of such losses or damages, including but not limited to:
(a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant
financial instrument is not the subject of a particular credit rating assigned by MOODY’S.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents,
representatives, licensors and suppliers disclaim liability for any direct or compensatory losses
or damages caused to any person or entity, including but not limited to by any negligence (but
excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt,
by law cannot be excluded) on the part of, or any contingency within or beyond the control of,
MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers,
arising from or in connection with the information contained herein or the use of or inability to use
any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS,
COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF
ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE
BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.
Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s
Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and
municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s
Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s
Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from
$1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies
and procedures to address the independence of Moody’s Investors Service credit ratings and credit
rating processes. Information regarding certain affiliations that may exist between directors of MCO
and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and
have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted
annually at
www.moodys.com
under the heading “Investor Relations — Corporate Governance —
Director and Shareholder Affiliation Policy.”
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the
Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited
ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136
972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale
clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access
this document from within Australia, you represent to MOODY’S that you are, or are accessing
the document as a representative of, a “wholesale client” and that neither you nor the entity you
represent will directly or indirectly disseminate this document or its contents to “retail clients” within
the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as
to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or
any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency
subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc.,
a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating
agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization
(“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-
NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated
obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit
rating agencies registered with the Japan Financial Services Agency and their registration numbers
are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including
corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated
by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to
MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging
from JPY125,000 to approximately JPY550,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory
requirements.
