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Rating Action:

Moody's rates Marsh & McLennan's senior notes Baa1, negative outlook

08 Jan 2019

Company issuing $5 billion in multiple tranches to help fund purchase of Jardine Lloyd Thompson

New York, January 08, 2019 -- Moody's Investors Service (Moody's) has assigned Baa1 ratings to multiple tranches of senior unsecured notes being issued by Marsh & McLennan Companies, Inc. (NYSE: MMC -- senior unsecured debt Baa1, commercial paper Prime-2). MMC intends to use net proceeds of the offering to fund a portion of its $5.6 billion purchase of the equity of UK-based insurance broker Jardine Lloyd Thompson Group plc (JLT). Other intended uses of proceeds include payment of related fees and expenses, repayment of certain JLT indebtedness, and general corporate purposes. The parties expect to complete the acquisition in the spring of 2019, subject to regulatory approvals. MMC is issuing the notes off its multi-purpose shelf registration. The rating outlook for MMC remains negative.

RATINGS RATIONALE

MMC's acquisition of JLT is strategically sound but credit negative based on the pending increase in financial leverage and the execution risk, according to Moody's. MMC is the world's largest insurance brokerage and consulting firm by revenue, and JLT will boost the group's revenue by about 13%. JLT operates in 40 countries, with strengths in the UK and Australia, as well as emerging markets across Asia and Latin America with attractive growth opportunities. JLT will enhance MMC's capabilities in such industry specialties as energy, mining, healthcare, construction, marine, and aerospace, and it will expand the group's presence in reinsurance brokerage.

Offsetting these benefits, MMC is taking on significant debt to help fund the acquisition. Moody's estimates that MMC's debt-to-EBITDA ratio will rise above 4x when it completes the transaction, well above its historical leverage of 2.6x-2.8x, while (EBITDA - capex) interest coverage will decline toward the mid-single digits from the high single digits. These metrics include Moody's standard accounting adjustments for pensions and leases. The acquisition carries execution risk for MMC, including potential attrition among producers and clients. The rating agency also said JLT has weaker profit margins than MMC, which the group aims to improve through integration and cost savings.

These elevated risks drive the negative rating outlook. Nevertheless, Moody's expects that MMC will reduce its financial leverage toward its historical levels through a combination of debt repayment and EBITDA growth over the 12-18 months following the acquisition. MMC says it will slow its share repurchases and other acquisitions to support such deleveraging.

MMC's ratings reflect its global market presence; diversification across clients, products and regions; expertise in providing complex risk and human resource solutions to global, national and middle market accounts; and long record of profitable growth. Tempering these strengths are MMC's increased financial leverage and execution risk associated with the JLT acquisition, its exposure to fluctuating pension obligations, and its potential liabilities arising from errors and omissions in the delivery of professional services.

Moody's cited the following factors that could lead to a stable rating outlook for MMC: (i) smooth integration of JLT into MMC with continued profitable growth, (ii) reduction of debt-to-EBITDA ratio below 3.2x following the acquisition, (iii) (EBITDA - capex) coverage of interest remaining in the mid-single digits or higher, and (iv) net profit margin remaining in the high single digits or higher.

The rating agency added that the following factors could lead to a rating downgrade: (i) debt-to-EBITDA ratio above 3.2x on a sustained basis, (ii) (EBITDA - capex) coverage of interest below 5x, or (iii) net profit margin below 8%.

Moody's has assigned the following ratings to MMC:

$700 million senior unsecured notes due in 2020 at Baa1;

$1.0 billion senior unsecured notes due in 2024 at Baa1;

$1.25 billion senior unsecured notes due in 2029 at Baa1;

$500 million senior unsecured notes due in 2039 at Baa1;

$1.25 billion senior unsecured notes due in 2049 at Baa1;

$300 million floating rate senior unsecured notes due in 2021 at Baa1.

The rating outlook for MMC remains negative.

The principal methodology used in these ratings was Insurance Brokers and Service Companies published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Based in New York City, MMC is a global professional service firm providing advice and solutions in the areas of risk, strategy and people to clients in more than 130 countries. The company operates through four major brands: Marsh (insurance broking and risk management), Guy Carpenter (reinsurance and intermediary advisory services), Mercer (health, wealth and career) and Oliver Wyman (management consulting, economic analysis and brand consulting). MMC generated revenue of $11.2 billion and net income attributable to MMC of $1.5 billion in the first nine months of 2018. Total equity was $7.5 billion as of September 30, 2018.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Bruce Ballentine
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Sarah Hibler
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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