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Global Credit Research - 15 Jun 2010
Approximately $3 billion of debt securities affected.
New York, June 15, 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's consulting subsidiary, Mercer (US)
Inc., has resolved litigation brought by the Alaska Retirement
Management Board (ARMB). Under the terms of the settlement agreement,
Mercer has agreed to pay $500 million, of which $100
million will be covered by insurance. While the pretax cost is
substantial, Moody's believes that MMC will generate ample
proceeds from the pending sale of Kroll Inc. ($1.13
billion cash transaction expected to close by late September 2010) to
cover the net cost of the ARMB settlement and to pay off a meaningful
amount of debt. The rating outlook for MMC is stable.
"The ARMB settlement adds to a series of charges by MMC for restructuring,
legal settlements and goodwill impairments over the past few years,"
said Bruce Ballentine, Moody's lead analyst for MMC, "although
this settlement does clear up a major contingency." The ARMB
lawsuit pertained to work done by Mercer during the period 1992-2004.
Since that time, MMC has enhanced its risk management and compliance
functions. The stable rating outlook reflects Moody's expectation
that MMC will further improve its operating margins while reducing debt
so as to strengthen its financial leverage and coverage metrics.
If such improvement is not evident over the next 12-18 months,
the company's ratings could be downgraded.
MMC's ratings reflect its leading market presence in global 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 the norms
for the rating category. In addition, MMC faces potential
liabilities arising from errors and omissions, a risk inherent in
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 much of its free cash to reduce debt.
While MMC generates sizable operating cash flows, the large common
stock dividend limits the amount of free cash flow available to service
debt. The rating agency expects that MMC will refrain from share
repurchase activity until it has materially strengthened its financial
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.
Moody's last rating action on MMC took place on June 9, 2010,
when the ratings were affirmed following the announcement of the Kroll
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 Mercer settlement
No Related Data.
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