Humana Issues Senior Notes - Analyst Blog

Last week, Humana Inc. (HUM) announced that its public offering of 3.15% senior notes worth $600 million, maturing in December 2022, and 4.625% senior notes worth $400 million, due December 2042, has been completed. The 3.15% senior notes have been issued at a 0.39% discount, while the 4.625% senior notes have been issued at a 0.063% discount.

Humana will use the proceeds from the notes to pay the purchase consideration for the acquisition of Metropolitan Health Networks Inc. (MDF), fees and expenses related to this acquisition as well as to repay the latter’s outstanding debt. Residual proceeds will be used for the company’s general corporate purposes.

However, Humana will redeem both types of notes in case the acquisition does not culminate by May 31, 2013 or if the agreement gets terminated by that date. The notes will be redeemed at principal plus 1% premium on the principal value. Additionally, the accrued and unpaid interest on the notes till the day before the redemption will be paid to the holders of the note.

Humana announced the agreement to acquire Florida-based Metropolitan Health – a medical services organization – in November 2012. The purchase consideration amounts to $850 million, excluding transaction costs. Accordingly, Humana will make a cash payment of $11.25 per Metropolitan Health share to the shareholders of the latter. In addition to the proceeds from the issuance, the company will use its available cash balance to finance the acquisition.

Currently, the shares of Humana carry a Zacks #3 Rank (Hold). We maintain a long-term ‘Neutral’ recommendation on the stock.

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