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Global Credit Research - 09 Jun 2010
Approximately $3 billion of debt securities affected.
New York, June 09, 2010 -- Moody's Investors Service has affirmed the ratings of Marsh & McLennan
Companies, Inc. (NYSE: MMC -- senior unsecured
debt at Baa2, commercial paper at Prime-2) following the
announcement that MMC has agreed to sell Kroll Inc. to Altegrity,
Inc. for $1.13 billion in cash. The sale is
subject to regulatory approvals and other customary closing conditions,
and is expected to close by late September 2010. Moody's
expects that MMC will use proceeds from the sale for general corporate
purposes such as debt reduction, acquisitions and contingencies.
The rating outlook for MMC is stable.
"The all-cash transaction will enhance MMC's financial flexibility
while moderately reducing its business diversification," said
Bruce Ballentine, Moody's lead analyst for MMC. "MMC
has the world's largest insurance brokerage and consulting operations,
and it is well diversified in terms of products, clients and geographic
scope. The proposed divestiture will allow the company to focus
on these core businesses."
MMC's ratings reflect its strong market presence in insurance brokerage,
its product and geographic diversification and its expertise in providing
complex risk management solutions, according to Moody's.
These strengths are tempered by the company's relatively weak, albeit
improving, operating margins and its volatile net profits,
along with financial flexibility metrics that are well below expectations
for the rating category. In addition, MMC faces potential
liabilities resulting from errors and omissions, a risk inherent
in professional services.
MMC's net results have fluctuated widely over the past few years,
reflecting goodwill impairment charges pertaining to Kroll ($315
million in 2009 and $540 million in 2008), restructuring
charges, settlement/legal/regulatory costs and the effects of discontinued
operations (including a large gain from the sale of Putnam Investments
in 2007). The company is exposed to further earnings volatility
from contingent exposures, including a civil lawsuit filed against
Mercer (US) Inc. by the Alaska Retirement Management Board.
Although MMC has expanded its brokerage operating margin over the past
couple of years, its adjusted debt-to-EBITDA ratio,
as calculated by Moody's, has remained in the vicinity of
4x, and its adjusted (EBITDA -- capex) coverage of interest
has stayed in the range of 3x-3.5x. The company's
debt burden has been fairly stable while its overall EBITDA has been constrained
by restructuring and other charges. Moody's expects that
MMC's EBITDA will show the benefits of these restructuring efforts
and that the company will use some of its free cash to reduce debt.
"Moreover, the rating affirmation reflects our understanding
that MMC will refrain from share repurchase activity until it has materially
strengthened its financial leverage and coverage metrics,"
said Mr. Ballentine.
Moody's cited the following factors that could lead to an upgrade of MMC's
ratings: (i) net profit margin approaching 10%, (ii)
adjusted (EBITDA -- capex) coverage of interest above 7x, and
(iii) adjusted debt-to-EBITDA ratio below 2.5x.
Moody's cited the following factors that could lead to a rating downgrade:
(i) net profit margin remaining below 6%, (ii) adjusted (EBITDA
-- capex) coverage of interest remaining below 4x, or (iii)
adjusted debt-to-EBITDA ratio remaining above 3.5x.
MMC's failure to improve these metrics over the next 12-18
months could result in a downgrade.
Moody's last rating action on MMC took place on March 18, 2009,
when a Baa2 rating was assigned to a $400 million offering of 10-year
senior unsecured notes.
MMC is a New York-based global professional services firm providing
advice and solutions in the areas of risk, strategy and human capital
to clients in more than 100 countries. MMC reported total revenue
of $10.5 billion in 2009 and $2.8 billion
in the first quarter of 2010. Total stockholders' equity was $6.0
billion as of March 31, 2010.
The principal methodology used in rating MMC was Moody's Global Rating
Methodology for Insurance Brokers & Service Companies, published
in January 2008 and available on www.moodys.com in the Rating
Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
For more information, please visit our website at www.moodys.com/insurance.
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
Financial Institutions Group
Moody's Investors Service
Moody's affirms MMC's ratings following Kroll sale agreement
No Related Data.
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