Aetna 2014 Annual Report Download - page 130

Annual Report- Page 124
In April 2014, we entered into an interest rate swap with a notional value of $250 million. We designated this swap
as a cash flow hedge against interest rate exposure related to the forecasted future issuance of fixed-rate debt to be
primarily used to refinance long-term debt maturing in 2018. In November 2014, prior to issuing the November
2014 Senior Notes used to refinance our 6.50% senior notes due 2018 and for general corporate purposes, we
terminated this swap and paid an aggregate of $15.2 million to the swap counterparty upon termination. We
performed a final effectiveness test upon termination of this swap and determined there was approximately $3
million pretax of ineffectiveness that arose due to the actual debt issuance date being earlier than forecasted. The
ineffectiveness was recorded as a realized capital loss in the fourth quarter of 2014. The effective portion of the
hedge loss of approximately $12 million pretax was recorded in accumulated other comprehensive loss, net of tax,
and is being amortized as an increase to interest expense over the first 20 semi-annual interest payments of the
November 2014 Senior Notes.
March 2014
On February 7, 2014, we announced the redemption for cash of the entire $750 million aggregate principal amount
outstanding of our 6.0% senior notes due 2016. The redemption of these notes occurred on March 14, 2014 (the
“March Redemption Date”) at a redemption price that included a make-whole premium, plus interest accrued and
unpaid at the March Redemption Date. We financed the redemption by issuing $375 million of 2.2% senior notes
due 2019 and $375 million of 4.75% senior notes due 2044 (collectively, the “March 2014 Senior Notes”), together
with other available resources. As a result of the redemption, in the first quarter of 2014, we recorded a loss on the
early extinguishment of long-term debt of $59.7 million ($91.9 million pretax).
During June and July 2012, we entered into two interest rate swaps with an aggregate notional value of $375
million. We designated these swaps as cash flow hedges against interest rate exposure related to the forecasted
future issuance of fixed-rate debt to refinance our 6.0% senior notes due 2016. In March 2014, prior to issuing the
March 2014 Senior Notes used to refinance our 6.0% senior notes due 2016, we terminated these swaps and
received an aggregate of $34.2 million from the swap counterparties upon termination. We performed a final
effectiveness test upon termination of these swaps and determined there was approximately $12 million pretax of
ineffectiveness that arose due to the actual debt issuance date being earlier than forecasted. The ineffectiveness was
recorded as a realized capital gain in the first quarter of 2014. The effective portion of the hedge gain of
approximately $22 million pretax was recorded in accumulated other comprehensive loss, net of tax, and is being
amortized as a reduction to interest expense over the first 20 semi-annual interest payments associated with the
$375 million of 4.75% senior notes due 2044.
2012
In 2012, we repurchased approximately $200 million par value of our outstanding senior notes and recorded a loss
on the early extinguishment of this long-term debt of $55.2 million ($84.9 million pretax) during 2012.
Interest Rate Swaps
In March 2014, we entered into two interest rate swaps with an aggregate notional value of $500 million. We
designated these swaps as cash flow hedges against interest rate exposure related to the forecasted future issuance
of fixed-rate debt to be primarily used to refinance long-term debt maturing in 2017. At December 31, 2014, these
interest rate swaps had a pretax fair value loss of $53.2 million, which was reflected net of tax in accumulated other
comprehensive loss within shareholders’ equity.
Revolving Credit Facility
On March 27, 2012, we entered into an unsecured $1.5 billion five-year revolving credit agreement (the “Credit
Agreement”) with several financial institutions. On September 24, 2012, in connection with the acquisition of
Coventry, we entered into a First Amendment (the “First Amendment”) to the Credit Agreement and also entered
into an Incremental Commitment Agreement (the “Incremental Commitment”, and together with the First
Amendment and the Credit Agreement, resulting in the “Facility”). The Facility is an unsecured $2.0 billion
revolving credit agreement. Upon our agreement with one or more financial institutions, we may expand the
aggregate commitments under the Facility to a maximum of $2.5 billion. The Facility also provides for the issuance
of up to $200 million of letters of credit at our request, which count as usage of the available commitments under