Fitch Affirms Willis' Ratings at 'BBB-'; Outlook Stable

NEW YORK--()--Fitch Ratings today affirmed the 'BBB-' Issuer Default Ratings (IDRs) of Willis Group Holdings PLC (Willis), Willis North America Inc. (WNA), and Trinity Acquisition plc. The Rating Outlook is Stable. A full list of ratings actions is shown below.

KEY RATING DRIVERS

The ratings affirmation reflects a view that the performance of Willis' insurance brokerage operations compares favorably with its closest competitors and will continue to do so in the near term, including positive organic growth while consolidated pre-tax profit margins remain near recent levels of approximately 20%.

The affirmation further reflects an expectation that projected ranges for two key credit ratios will remain at levels that are manageable for an insurance broker.

Specifically, Fitch anticipates that Willis' reported debt-to-EBITDA ratio will gradually return to levels near 2.5 times (x) from levels closer to 2.7x reported in 2012 and for the first nine months of 2013 (annualized). This key credit metric appears poised to improve marginally in 2014 if earnings show moderate improvement and debt levels remain stable, as expected.

Fitch also expects the company's EBITDA-to-interest expense ratio to remain at least in the mid-single digits where it has stabilized over the past few years.

Fitch believes that more meaningful earnings growth and accompanying improvement in key credit ratios will remain elusive in the near to medium term due to a challenging operating environment. Specifically, the commercial insurance rates, while still improving in many business lines, are beginning to flatten. This trend will slow commission-related revenue growth. Similarly, the global economy appears to be growing, but at a tepid rate in most developed economies.

Willis' ratings also consider the company's large intangible asset position, which currently comprise roughly 157% of Willis' common equity. Willis' $492 million fourth-quarter 2012 goodwill write-down largely reflected Willis' recognition of a downward adjustment to initial growth expectations for its North American business segment following Willis' 2008 acquisition of Hilb Rogal Hobbs.

Fitch does not view the charge as an indication that the performance of Willis' North American business will deteriorate further from levels that prompted the charge. Willis' North American segment has reported solid organic growth and margin expansion in the first nine months of 2013. This result strengthens confidence that future impairments related to North American business are less likely.

Similar to other insurance brokers that Fitch rates, Willis' ratings also reflect that the company faces contingent risks as an occasional target of litigation.

While Willis purchases errors and omissions insurance coverage to protect itself against this exposure, such protection is not always adequate to fully indemnify the broker for monetary damages.

RATING SENSITIVITIES

Key rating triggers that could result in a downgrade include a failure to gradually reduce Willis' debt-to-EBITDA ratio from recent levels around 2.7x, or a failure to maintain average EBITDA-to-interest ratios of 5x or higher.

Fitch could also downgrade Willis' ratings if the company were to report a material goodwill impairment that cast doubt on Willis' ability to generate future earnings and cash flows.

Additionally, if Willis' required pension contributions were to increase to the point at which it strained the ability's cash flows available to service its existing debt, Fitch could downgrade Willis' ratings.

Key rating triggers that could result in an upgrade include a decrease in Willis' debt-to-EBITDA ratio to levels below 2.0x accompanied by EBITDA-to-interest ratios averaging in the high single digits.

Fitch has affirmed the following ratings with a Stable Outlook:

Willis Group Holdings PLC

--IDR at 'BBB-';

--$299 million of 4.125% senior unsecured notes due 2016 at 'BBB-';

--$496 million of 5.75% senior unsecured notes due 2021 at 'BBB-'.

Willis North America Inc.

--IDR at 'BBB-';

--$148 million 5.625% senior unsecured notes due 2015 at 'BBB-';

--$394 million 6.2% senior unsecured notes due 2017 at 'BBB-';

--$187 million 7.00% senior notes due 2019 at 'BBB-'.

Trinity Acquisition plc

--$248 million of 4.625% senior unsecured notes due Aug. 15, 2023 at 'BBB-';

--$273 million of 6.125% senior unsecured notes due Aug. 15, 2043 at 'BBB-'.

Additional information is available on Fitch's web site at 'www.fitchratings.com'.

Applicable Criteria and Relevant Research:

--'U.S. Insurance Broker Industry Sector Credit Factors' (May 4, 2012);

--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary' (Aug. 5, 2013).

Applicable Criteria and Related Research:

U.S. Insurance Broker Industry Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=677409

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=814539

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.

Contacts

Fitch Ratings
Primary Analyst
Gregory Dickerson
Director
+1-212-908-0220
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Gretchen Roetzer
Director
+1-312-606-2327
or
Committee Chairperson
Douglas Meyer
Managing Director
+1-312-368-2061
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Gregory Dickerson
Director
+1-212-908-0220
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Gretchen Roetzer
Director
+1-312-606-2327
or
Committee Chairperson
Douglas Meyer
Managing Director
+1-312-368-2061
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com