United Healthcare 2008 Annual Report Download - page 86

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UNITEDHEALTH GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In November 2007, the Company issued a total of $1.6 billion in senior unsecured debt, which included: $250
million of 5.1% fixed-rate notes due November 2010, $450 million of 5.5% fixed-rate notes due November 2012,
$250 million of 6.0% fixed-rate notes due November 2017 and $650 million of 6.6% fixed-rate notes due
November 2037. These notes were issued pursuant to an exemption from registration under Section 4(2) of the
Securities Act of 1933 (1933 Act). In February 2008, the Company completed an exchange offer in which then-
existing noteholders exchanged each series of these notes for a new issue of substantially identical debt securities
registered under the 1933 Act.
In June 2007, the Company issued a total of $1.5 billion in senior unsecured debt, which included: $500 million
of floating-rate notes due June 2010, $500 million of 6.0% fixed-rate notes due June 2017 and $500 million of
6.5% fixed-rate notes due June 2037. The floating-rate notes are benchmarked to LIBOR and had an interest rate
of 1.7% at December 31, 2008. These notes were issued pursuant to an exemption from registration under
Section 4(2) of the 1933 Act. In February 2008, the Company completed an exchange offer in which then-
existing noteholders exchanged each series of these notes for a new issue of substantially identical debt securities
registered under the 1933 Act.
In March 2006, the Company issued a total of $3.0 billion in senior unsecured debt to refinance outstanding
commercial paper. The Company issued $650 million of floating-rate notes due March 2009, $750 million of
5.3% fixed-rate notes due March 2011, $750 million of 5.4% fixed-rate notes due March 2016 and $850 million
of 5.8% fixed-rate notes due March 2036. The floating-rate notes are benchmarked to the LIBOR and had an
interest rate of 2.3% at December 31, 2008.
Debt Covenants
The Company’s debt arrangements and credit facilities contain various covenants, the most restrictive of which
require the Company to maintain a debt-to-total-capital ratio (calculated as the sum of commercial paper and debt
divided by the sum of commercial paper, debt and shareholders’ equity) below 50%. The Company was in
compliance with the requirements of all debt covenants as of December 31, 2008. In August 2006, the Company
received a purported notice of default from persons claiming to hold its 5.8% Senior Unsecured Notes due
March 15, 2036 alleging a violation of the indenture governing those debt securities. This followed the
Company’s announcement that the Company would delay filing its quarterly report on Form 10-Q for the quarter
ended June 30, 2006. See Note 15 of Notes to the Consolidated Financial Statements for a discussion of the
proceeding regarding the purported default.
Derivative Instruments and Hedging Activities
To more closely align interest expense with interest income received on the Company’s cash equivalent and
investment balances, the Company has entered into interest rate swap agreements to convert the majority of its
interest rate exposure from fixed rates to floating rates. The interest rate swap agreements have aggregate
notional amounts of $5.1 billion and $5.6 billion at December 31, 2008 and December 31, 2007, respectively.
The floating rates are benchmarked to LIBOR. The swaps are designated as fair value hedges of the fixed-rate
debt under the short-cut method of FAS 133, and are reported at fair market value in the Company’s
Consolidated Balance Sheets with the carrying value of the debt adjusted by an offsetting amount, with no
changes in market value recognized through the Company’s Consolidated Statements of Operations.
In January 2009 the Company terminated $4.9 billion notional of interest rate swap contracts with financial
institutions to lock-in the benefit of current low market interest rates. The cumulative adjustment to the carrying
value of the Company’s debt was $513 million and will be amortized as a reduction to interest expense over the
remaining life of the related debt, resulting in a weighted average interest rate of 3.3%.
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