Credit Agreement

During the years ended

December 31, 2016

and

2015,

principal payments were made against the Company’s revolving credit facility. The

$197.8

million principal balance of the revolving credit facility is due in

May 2018.

The Company has commenced discussions to extend or refinance the revolving credit facility.

The Credit Agreement provides for an initial

$500

million revolving credit facility, and, under specified circumstances, the revolving credit facility can be increased or

one

or more incremental term loan facilities can be added, provided that the incremental credit facilities do

not

exceed in the aggregate the sum of (a)

$75

million plus (b) an additional amount

not

less than

$25

million, so long as the total secured leverage ratio, calculated giving pro forma effect to the requested incremental borrowing and other customary and appropriate pro forma adjustment events, including any permitted acquisitions, is

greater than

2.5:1.0.

The Company’s obligations and any amounts due under the Credit Agreement are guaranteed by the Company’s material

100%

owned subsidiaries and secured by a security interest in all or substantially all of the Company’s and the Company’s subsidiaries’ physical assets.

The Credit Agreement requires the Company to comply with certain principal financial covenants and other covenants, including a maximum consolidated leverage ratio at

3.25:1.00

and a minimum interest coverage ratio of

3.00:1.00.

The interest rates applicable to the revolving credit facility are, at the Company’s option, either:

the LIBOR multiplied by the statutory reserve rate plus an interest margin ranging from

1.50%

2.25%

based on the Company’s consolidated leverage ratio, or

a base rate (which is equal to the greatest of (i) Citibank’s prime rate, (ii) the federal funds effective rate plus

0.50%

and (iii) the

one

-month LIBOR plus

1.00%

plus an interest margin ranging from

0.50%

1.25%

based on the Company’s consolidated leverage ratio.

HMS pays an unused commitment fee on the revolving credit facility during the term of the Credit Agreement ranging from

0.375%

0.50%

per annum based on the consolidated leverage ratio.

Interest expense and the commitment fees on the unused portion of the Company’s revolving credit facility were as follows (

in thousands

	Three Months Ended March 31,
	2017		2016
Interest expense	$	1,374	$	1,178
Commitment fees	$	378	$	378

As of

March 31, 2016

and

December 31, 2016,

the unamortized balance of deferred origination fees and debt issuance costs were

$2.3

million and

$2.8

million, respectively, recorded in Other assets on the Consolidated Balance Sheets. For both the

three

month periods ended

March 31, 2017

and

2016,

HMS amortized

$0.5

million of interest expense related to the Company’s deferred origination fees and debt issue costs.

Although HMS expects that operating cash flows will continue to be a primary source of liquidity for the Company’s operating needs, the revolving credit facility

may

be used for general corporate purposes, including, but

not

limited to acquisitions, if necessary.

As part of the Company’s contractual agreement with a customer, HMS has an outstanding irrevocable letter of credit for

$3.0

million, which HMS established against the revolving credit facility. On

May 1, 2017,

the expiration date of the letter of credit was extended to

April 26, 2018.

As previously disclosed, on

March 8, 2017,

Amendment

No.

to the Credit Agreement was executed which amended, among other things, the Company’s requirement to furnish to Citibank, N.A., as administrative agent, and the lenders party to the Credit Agreement, financial statements and other information within

days of the fiscal year-end to

180

days for the fiscal year-ended

December 31, 2016.

These financial statements include the audited consolidated balance sheet and related statements of income, stockholders’ equity and cash flows of the Company and its subsidiaries.

As of

March 31, 2017,

the Company was in compliance with all terms of the Credit Agreement.