Fitch Revises Marsh & McLennan's Rating Outlook to Positive; Affirms all Ratings
(The following statement was released by the rating agency) CHICAGO, April 13 (Fitch) Fitch Ratings has affirmed Marsh & McLennan Companies, Inc.'s (MMC) Long-Term Issuer Default Rating (IDR) and existing senior unsecured debt ratings at 'A-' and short-term ratings at 'F2', and revised the Rating Outlook to Positive from Stable. A full list of ratings follows at the end of this release. KEY RATING DRIVERS These actions reflect MMC's continued trend of improved operating performance and stronger credit metrics that has persisted for several years, on an absolute basis and relative to peers. Fitch notes the company has also performed in-line with Fitch's upgrade rating triggers. MMC has maintained a strong balance sheet and financial flexibility, and excellent operating performance, including cash flow generation. The rating rationale also considers MMC's top-tier competitive position as one of the world's largest diversified services firms, with major operations in insurance brokerage and consulting. Partially offsetting these favorable factors is that similar to other Fitch-rated insurance brokers, MMC faces contingent risks, including to its reputation and as an occasional target of litigation and regulatory actions that can have a financial impact. However, Fitch believes these risks are manageable. The company continues to maintain strong liquidity with a reported $1 billion of cash and equivalents at Dec. 31, 2016 and a $1.5 billion multi-currency unsecured revolving credit facility that expires in November 2020. Fitch expects FCF to continue to grow over time, due in part to expense reductions and projected earnings growth. Favorably, restructuring expenses have recently been immaterial, and share repurchases are considered to be discretionary in order to preserve liquidity ($800 million repurchased in 2016 compared to $1.4 billion in 2015). MMC's consolidated EBIT operating margin, debt-to-EBITDA ratio, and EBITDA-to-interest coverage ratios have each been consistently strong and are projected to remain so. Given prospects for further solid earnings growth in 2017 and 2018, Fitch expects these key metrics to remain well within guidelines for the current rating category. The ratings continue to reflect a trend of improved operating performance and stronger credit metrics that has persisted for several years. At Dec. 31, 2016, EBITDA-to-interest coverage was excellent at over 16x, and financial leverage as measured by debt-to-EBITDA remained moderate at 1.5x. Pro forma leverage for the January 2017 debt issuance and refinancing increased to roughly 1.8x, which remains within Fitch's expectations, but we anticipate that financial leverage will return to lower normalized levels from projected revenue and earnings growth. MMC has sustained its strong performance due in part to its diverse product offerings, geographic footprint, and client retention. A largely stable commercial pricing environment, a gradual improvement in the global macroeconomic environment, and reduced expenses also contribute to its performance. For 2016, MMC's Fitch-calculated consolidated operating EBIT margin was excellent at 20%, an improvement over 19% at year-end 2015. Both the company's Risk & Insurance Services (RIS) and Consulting segments reported organic revenue growth and year-over-year margin expansion. Looking forward, operating results could benefit from underlying insured exposure growth derived from a modestly growing global economy. Exposure growth benefits are partially offset by weak primary and reinsurance market pricing. These trends should have a modest net favorable impact on top-line growth in both MMC's RIS and Consulting segments. The affirmation of MMC's 'F2' short-term ratings is based on its 'A-' Long-Term IDR and continues to reflect the strong liquidity position and supporting contingency programs, and proven access to the capital markets. RATING SENSITIVITIES Key rating triggers that could lead to an upgrade if observed over a sustained period of time include: --Consolidated EBIT operating margins of 18% or better; --Debt-to-EBITDA (adjusted for large one-time items) near 1.5x; --EBITDA-to-interest expense in excess of 14x. Key rating triggers that could result in a return to a Stable Outlook include: --Failure to reduce debt-to-EBITDA (adjusted for large one-time items) to near 1.5x; --EBITDA-to-interest expense coverage below 10x; --If MMC incurred material charges arising from litigation or regulatory rulings that could affect long-term performance; --If MMC were to report a material goodwill impairment that casts doubt on its ability to generate future earnings and cash flows. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings: Marsh & McLennan Companies, Inc. --Long-Term IDR at 'A-'; --Short-Term IDR at 'F2'; --Commercial paper at 'F2'; --$250 million 2.55% senior debt due 2018 at 'A-'; --$300 million 2.35% senior debt due 2019 at 'A-'; --$500 million 2.35% senior debt due 2020 at 'A-'; --$500 million 4.80% senior notes due 2021 at 'A-'; --$500 million 2.75% senior notes due 2022 'A-'; --$250 million 4.05% senior debt due 2023 at 'A-'; --$350 million 3.3% senior notes due 2023 at 'A-'; --$600 million 3.50% senior notes due 2024 at 'A-'; --$500 million 3.50% senior debt due 2025 at 'A-'; --$600 million 3.75% senior debt due 2026 at 'A-'; --$300 million 5.875% senior debt due 2033 at 'A-'; --$500 million 4.35% senior notes due 2047 'A-'. The Rating Outlook is Positive. Contact: Primary Analyst Gretchen Roetzer Director +1-312-606-2327 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Martha Butler, CFA Senior Director +1-312-368-3191 Committee Chairperson Donald F. Thorpe, CPA, CFA Senior Director +1-312-606-2353 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com; Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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