Health Net 2010 Annual Report Download - page 46

the agreement. If this were to occur, in order to engage in the business we would be required to obtain the
Buyer’s consent under the Non-Competition Agreement, which the Buyer could withhold in its discretion. In the
event that we are unable to engage in a business due to the terms of the Non-Competition Agreement, this could
have an adverse effect on our prospects, business, financial condition or results of operations.
We have a material amount of indebtedness and may incur additional indebtedness, or need to refinance
existing indebtedness, in the future, which may adversely affect our operations.
Our indebtedness includes $400 million in aggregate principal amount of 6.375% Senior Notes due 2017. In
addition, we have a $900 million five-year revolving credit facility that expires in June 2012. As of December 31,
2010, there were no amounts outstanding under our revolving credit facility. For a description of our Senior
Notes and our revolving credit facility, see “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital Resources—Capital Structure.” We may incur
additional debt in the future. Our existing indebtedness, and any additional debt we incur in the future through
drawings on our revolving credit facility or otherwise could have an adverse effect on our business and future
operations. For example, it could:
• require us to dedicate a substantial portion of cash flow from operations to pay principal and interest on
our debt, which would reduce funds available to fund stock repurchases, working capital, capital
expenditures and other general operating requirements;
• increase our vulnerability to general adverse economic and industry conditions or a downturn in our
business; and
• place us at a competitive disadvantage compared to our competitors that have less debt.
We continually evaluate options to refinance our outstanding indebtedness. Our ability to obtain any
financing, whether through the issuance of new debt securities or otherwise, and the terms of any such financing
are dependent on, among other things, our financial condition, financial market conditions within our industry
and generally, credit ratings and numerous other factors. In the past, credit markets experienced unusual
uncertainty, and liquidity and access to capital markets continue to be constrained. Concern about the stability of
the markets generally has lead many lenders to reduce and in some cases cease to provide funding to borrowers.
See “—If the current unfavorable economic conditions continue or further deteriorate, it could adversely affect
our revenues and results of operations.” Consequently, in the event we need to access the credit markets,
including to refinance our debt, there can be no assurance that we will be able to obtain financing on acceptable
terms or within an acceptable time, if at all. If we are unable to obtain financing on terms and within a time
acceptable to us it could, in addition to other negative effects, have a material adverse effect on our operations,
financial condition, ability to compete or ability to comply with regulatory requirements.
Downgrades in our debt ratings may adversely affect our business, financial condition and results of
operations.
Claims paying ability, financial strength, and debt ratings by nationally recognized statistical rating
organizations are increasingly important factors in establishing the competitive position of insurance companies
and managed care companies. We believe our claims paying ability and financial strength ratings also are
important factors in marketing our products to certain of our customers. In addition, our debt ratings impact both
the cost and availability of future borrowings and, accordingly, our cost of capital. Rating agencies review our
ratings periodically and there can be no assurance that our current ratings will be maintained in the future. Our
ratings reflect each rating agency’s independent opinion of our financial strength, operating performance, ability
to meet our debt obligations or obligations to policyholders and other factors, and are subject to change. Potential
downgrades from ratings agencies, should they occur, may adversely affect our business, financial condition and
results of operations.
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