Fitch Affirms Marsh & McLennan’s Ratings; Outlook Stable
The affirmation follows an updated review of MMC's financial performance, balance sheet strength, liquidity, and debt servicing capabilities.
The rationale for MMC's ratings includes the company's competitive position as one of the world's largest diversified services firms, with major operations in insurance brokerage and consulting.
The ratings also reflect MMC's strong financial flexibility. Fitch notes that MMC's net debt (total debt less cash and cash equivalents) is significantly lower than levels reported several years ago. MMC maintained approximately
Partially offsetting these favorable factors is the fact that MMC's debt-to-EBITDA ratio (2.3 times [x] in 2010) and EBITDA-to interest coverage ratio (5.5x in 2010), although improved from prior year levels of 2.9x and 5.1x, respectively, remain at levels that Fitch views as merely adequate for the current rating category. Fitch notes that both ratios were adversely impacted in 2010 by the company's
For the past several years, MMC's earnings have recently been pressured by litigation charges, restructuring expenses, a softening insurance pricing cycle, and the global economic downturn. Despite these headwinds, MMC's operating performance improved in 2010, due to revenue growth and margin expansion in both of the company's two reporting segments, Risk & Insurance Services and Consulting.
Key ratings drivers for MMC to maintain its existing ratings include maintaining the strong financial flexibility discussed above until such time that MMC's operating performance improves to the extent that run-rate debt-to-EBITDA and interest coverage ratios normalize at stronger levels. If this were to occur, it would become less important that MMC retain large cash balances on its ledger to maintain its existing ratings.
Key ratings drivers that could lead to a Negative Rating Outlook or ratings downgrade include if MMC'S debt to EBITDA multiple were to exceed 3.0x, if the company's EBITDA-to-interest coverage ratio were to deteriorate from recent levels in the mid-single digits, or if the company were to incur additional, material charges arising from litigation or regulatory rulings.
The key long-term rating drivers that could result in an upgrade include sustained improvement in operating performance on an absolute basis and relative to peers, a debt-to-EBITDA ratio at a consistent level of under 1.5x, and interest coverage as measured by an EBITDA-to-interest ratio near 15x.
Fitch has affirmed the following ratings with a Stable Outlook:
--IDR at 'BBB';
--Short-term IDR at 'F2';
--Commercial Paper at 'F2'.
Fitch rates MMC's senior debt as follows:
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Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the rating process other than through the medium of its public disclosure.
--'Insurance Broker Rating Methodology' (
--'Corporate Rating Methodology' (
Insurance Broker Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=590447
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
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