NEW YORK--(BUSINESS WIRE)--Fitch Ratings today affirmed the Issuer Default Rating (IDR) and senior unsecured debt rating for Marsh & McLennan Companies, Inc. (MMC) at 'BBB+'. A full list of rating actions follows at the end of this release. The Rating Outlook is Stable.
KEY RATING DRIVERS
The affirmation also reflects the continuation of MMC's trend of improved operating performance and stronger credit metrics that began in the second half of 2010 and has persisted for several years. MMC's consolidated EBIT operating margin, debt-to- EBITDA ratio, and EBITDA-to interest coverage ratios have each been consistently strong relative to the current rating category.
In 2013, MMC's consolidated EBIT operating margin improved to 17.6% versus 15.7% in 2012. The company's Risk & Insurance Services (RIS) and Consulting segments both reported organic revenue growth and margin expansion during the period.
In 2013, MMC's debt-to- annualized EBITDA ratio and EBITDA-to interest coverage ratios both improved year over year and are strong for the current rating category at approximately 1.2x and 15.0x, respectively.
MMC appears positioned to sustain its recent performance levels in the near to medium term due to a largely stable commercial pricing environment and gradually improving macroeconomic environment.
The rating rationale 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. MMC reported approximately $2.3 billion of cash and cash equivalents on its balance sheet as of Dec. 31, 2013, and also maintains a $1 billion multicurrency unsecured revolving credit facility that expires in October 2016. There were no borrowings under this facility as of Dec. 31, 2013.
Partially offsetting these favorable factors is the company's large goodwill and intangible asset position, which currently comprises 92% of MMC's common equity and highlights the risk associated with potential goodwill write-downs. Similar to other insurance brokers that Fitch rates, MMC's ratings also reflect that the company faces contingent risks as an occasional target of litigation.
MMC's pension obligations have remained in an underfunded position for the past several years, although the deficit decreased significantly in 2013 and the obligations are currently nearly fully funded in aggregate. The improvement is largely due to invested asset appreciation and contributions made by MMC. A reduction in projected benefit obligations following the increase in US interest rates in 2013 also benefited the funding status. MMC's pension contributions for the foreseeable future should remain manageable.
Longer-term rating triggers that could result in a rating upgrade include sustained consolidated EBIT operating margins of 15% or better, accompanied by debt-to-EBITDA ratios consistently under 1.3 and EBITDA-to-interest ratios consistently in excess of 12.0x.
Key ratings triggers that could lead to a rating downgrade if observed over a sustained period of time include MMC's debt-to-EBITDA multiple exceeding 2.0x or the company's EBITDA-to-interest coverage ratio deteriorating to levels below 8.0x. Additionally, Fitch could downgrade MMC's ratings if the company incurred additional, material charges arising from litigation or regulatory rulings.
Fitch has affirmed the following ratings with a Stable Rating Outlook:
Marsh & McLennan Companies, Inc.
--Long-term IDR at 'BBB+';
--Short-term IDR at 'F2';
--Commercial paper at 'F2';
--$320 million 5.375% senior debt due 2014 at 'BBB+';
--$230 million 5.75% senior debt due 2015 at 'BBB+';
--$250 million 2.30% senior debt due 2017 at 'BBB+';
--$250 million 2.55% senior debt due 2018 'BBB+';
--$400 million 9.25% senior debt due 2019 at 'BBB+';
--$500 million 4.80% senior notes due 2021 at 'BBB+';
--$250 million 4.05% senior debt due 2023 at 'BBB+';
--$300 million 5.875% senior debt due 2033 at 'BBB+'.
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.
Applicable Criteria and Related Research:
--'U.S. Insurance Broker Industry Sector Credit Factors' (May 4, 2012);
--'Corporate Rating Methodology' (Aug. 5, 2013).
Applicable Criteria and Related Research:
U.S. Insurance Broker Industry Sector Credit Factors
Corporate Rating Methodology - Effective 12 August 2011 to 8 August 2012