CHICAGO--(BUSINESS WIRE)--Fitch Ratings has upgraded Marsh & McLennan Companies, Inc.'s (MMC) long-term Issuer Default Rating (IDR) and senior unsecured debt ratings to 'A-' from 'BBB+'. Fitch has also affirmed MMC's short-term ratings at 'F2'. A full list of MMC's ratings follows at the end of this release. The Rating Outlook is Stable.
KEY RATING DRIVERS
The ratings upgrade reflects MMC's continued trend of improved operating performance and stronger credit metrics that has persisted for several years. The company has met all of Fitch's prior upgrade rating triggers and has exceeded expectations on an absolute basis and relative to peers.
MMC's consolidated EBIT operating margin, debt-to-EBITDA ratio, and EBITDA-to interest coverage ratios have each been consistently strong relative to its ratings. Given MMC's prospects for solid earnings growth in 2015, Fitch expects these key credit metrics to remain well within guidelines for MMC's current rating category.
The company has successfully demonstrated consistent and material key credit metric improvement over the past several years. MMC's 2014 EBITDA-to-interest coverage continued to be excellent at roughly 16x, and financial leverage as measured by debt-to-EBITDA remained moderate at 1.3x.
MMC has sustained improved performance levels due in part to a largely stable commercial pricing environment, an improving global macroeconomic environment, and reduced expenses. In 2014, MMC's consolidated EBIT operating margin was solid at 17.2%. Both the company's Risk & Insurance Services (RIS) and Consulting segments reported organic revenue growth and year over year margin expansion during the period.
The ratings also reflect MMC's strong balance sheet and financial flexibility. The company reported $2 billion of cash and equivalents at year-end 2014 versus $2.3 billion in 2013, and also maintains a $1.2 billion multicurrency unsecured revolving credit facility that expires in 2019. There were no borrowings from this facility as of Dec. 31, 2014. Fitch expects free cash flow to continue increasing over time due in part to expense reductions and projected earnings growth. Favorably, pension plans are nearly fully funded, restructuring expenses have recently been immaterial, and share repurchases are considered to be discretionary in order to preserve liquidity.
Looking forward, MMC's operating results could benefit from underlying insured exposure growth derived from a modestly growing global economy. Exposure growth benefits are partially offset by weakening primary insurance market pricing and significant rate softening in many reinsurance lines. These trends should have a modest net favorable impact on top-line growth in MMC's RIS and Consulting segments.
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 the fact that, similar to other insurance brokers that Fitch rates, MMC faces contingent risks, including reputational risk and as an occasional target of litigation and regulatory actions that can have a financial impact.
The affirmation of Fitch's 'F2' short-term ratings is based on MMC's 'A-' long-term IDR and continues to reflect MMC's strong liquidity position and supporting contingency programs, and proven access to the capital markets. MMC does not currently have any commercial paper outstanding.
RATING SENSITIVITIES
Key rating triggers that could lead to a downgrade if observed over a sustained period of time include:
--Debt-to-EBITDA exceeding 2.0x; and
--EBITDA-to-interest expense coverage deteriorating to levels below 10.0x; or
--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.
Longer term key rating triggers that could lead to an upgrade if observed over a sustained period of time include:
--Consolidated EBIT operating margins of 20% or better; and
--Debt-to-EBITDA approaching 1.0x; and
--EBITDA-to-interest expense in excess of 18.0x.
Fitch has upgraded the following ratings:
Marsh & McLennan Companies, Inc.
--Long-term IDR to 'A-' from 'BBB+';
--$250 million 2.30% senior debt due 2017 to 'A-' from 'BBB+';
--$250 million 2.55% senior debt due 2018 to 'A-' from 'BBB+';
--$300 million 2.35% senior debt due 2019 to 'A-' from 'BBB+';
--$500 million 2.35% senior debt due 2020 to 'A-' from 'BBB+';
--$500 million 4.80% senior notes due 2021 to 'A-' from 'BBB+';
--$250 million 4.05% senior debt due 2023 to 'A-' from 'BBB+';
--$600 million 3.50% senior notes due 2024 to 'A-' from 'BBB+';
--$500 million 3.50% senior debt due 2025 to 'A-' from 'BBB+';
--$300 million 5.875% senior debt due 2033 to 'A-' from 'BBB+'.
Fitch has affirmed the following ratings:
Marsh & McLennan Companies, Inc.
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. Insurance Broker Industry Sector Credit Factors' (May 2012);
--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 2014);
--'U.S. Insurance Brokers Dashboard' (March 2015).
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=749393
U.S. Insurance Brokers Dashboard
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863004
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983676
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