Fitch Affirms Aon’s Ratings; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed all of Aon plc's (Aon) ratings, including the Long-Term Issuer Default Rating (IDR) and senior debt ratings at 'BBB+', and the Commercial Paper Ratings at 'F2'. The Rating Outlook is Stable. A complete list of ratings follows at the end of this release.

KEY RATING DRIVERS

The ratings affirmation reflects Aon's continued favorable competitive position, solid balance sheet and cash flow generation, and very good financial flexibility, partially offset by a moderate run-rate level of financial leverage, all of which are within guidelines for the current rating category.

Also partially offsetting the favorable factors is the fact that, similar to other insurance brokers that Fitch rates, Aon faces contingent risks, including reputational risk and as an occasional target of litigation and regulatory actions that can have a financial impact.

Fitch believes Aon's liquidity profile is strong with cash and short-term investments of $946 million as of Sept. 30, 2016. Cash flow remains significant with earnings-based EBITDA interest coverage of roughly 9.3x for the trailing-12-month period and averaging roughly 10x over the past five years. Through the first nine months of 2016, cash flow from operations increased 14% to $1.5 billion, and free cash flow (less capital expenditures) also grew 24% to $1.3 billion, due primarily to reduced expenses and an increase in net income.

Financial flexibility continues to improve year over year. Interest coverage remains solid despite some earnings pressure and a temporary increase in interest expense from prefunded debt due in part to reduced pension liabilities and underlying working capital improvements, and decreasing capital expenditures. Fitch expects Aon's financial flexibility to remain strong going forward.

Financial leverage as measured by debt-to-EBITDA is managed at a moderately higher level relative to some of its peers and Fitch considers it to be one of Aon's key rating triggers. Leverage was roughly 2.4x at Sept. 30, 2016 and remains in line with historical levels.

Fitch expects that leverage should remain relatively stable with some modest improvement, assuming continued EBITDA growth, partially offset by continued capital planning including share repurchases, which Fitch considers discretionary. Leverage should continue to be manageable and within both Fitch's expectations for the company and the broker-sector credit factor guidelines for the current rating category, with any debt increases aligned with growing EBITDA and increased cash flow.

The ratings continue to reflect Aon's favorable competitive position among the top three global brokers, with major operations in (re)insurance brokerage and human capital consulting/outsourcing. The company continues to demonstrate its ability to retain clients and expand new business while improving free cash flow and maintaining profitability.

Partially offsetting these positive factors are continued balance sheet and earnings pressure from pension liabilities, competitive insurance market conditions particularly in reinsurance, and the global economic downturn.

RATING SENSITIVITIES

The key rating triggers that could result in an upgrade include the following:

--A sustained strong improvement in operating performance on an absolute basis and relative to peers with operating EBIT consistently over $1 billion and an operating EBIT margin near 15%;

--A run-rate debt-to-EBITDA ratio approaching 1.7x;

--Interest coverage as measured by an EBITDA-to-interest more than 12x.

The key rating triggers that could result in a downgrade include the following:

--A sustained increase in debt-to-EBITDA to more than 2.5x (adjusted for large one-time items) while maintaining an operating EBIT margin near 12%;

--A deterioration of the company's average EBITDA-to-interest expense to lower single digits;

--An impairment to goodwill that would materially impact the balance sheet and related ratios.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

Aon plc

--Long-Term IDR at 'BBB+';

--$400 million 2.8% senior debt due 2021 at 'BBB+';

--$350 million 4% senior debt due 2023 at 'BBB+';

--$600 million 3.5% senior debt due 2024 at 'BBB+';

--$750 million 3.875% senior debt due 2025 'BBB+';

--EUR500 million 2.875% senior debt due 2026 at 'BBB+';

--$256 million 4.25% senior debt due 2042 at 'BBB+';

--$250 million 4.45% senior debt due 2043 at 'BBB+';

--$550 million 4.6% senior debt due 2044 at 'BBB+';

--$600 million 4.75% senior debt due 2045 at 'BBB+';

--Short-Term IDR at 'F2';

--Commercial Paper Rating at 'F2'.

Aon Corporation

--Long-Term IDR at 'BBB+';

--$600 million 5% senior debt due 2020 at 'BBB+';

--$521 million 8.205% junior subordinated deferrable interest debentures due 2027 at 'BBB-';

--$300 million 6.25% senior debt due 2040 at 'BBB+';

--Short-Term IDR at 'F2';

--Commercial Paper Rating at 'F2'.

The Rating Outlook is Stable.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016)

https://www.fitchratings.com/site/re/885629

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1016224

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016224

Endorsement Policy

https://www.fitchratings.com/regulatory

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

View source version on businesswire.com: http://www.businesswire.com/news/home/20161209005551/en/

Fitch Ratings, Inc.

Primary Analyst

Gretchen Roetzer
Director

+1-312-606-2327

Fitch Ratings, Inc.

70 West Madison Street

Chicago, IL 60602

or

Secondary Analyst

Martha M. Butler, CFA

Senior Director

+1-312-368-3191

or

Committee Chairperson

Donald F. Thorpe, CPA, CFA

Senior Director

+1-312-606-2353

or

Media Relations

Hannah James, + 1-646-582-4947

[email protected]

Source: Fitch Ratings