Fitch Affirms Marsh & McLennan's Ratings at 'A-'; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed Marsh & McLennan Companies, Inc.'s (MMC) Long-Term Issuer Default Rating (IDR) and existing senior unsecured debt ratings at 'A-' and short-term ratings at 'F2'. The Rating Outlook is Stable. A full list of ratings follows at the end of this release.

KEY RATING DRIVERS

The ratings affirmation reflects MMC's continued strong balance sheet, financial flexibility and excellent operating performance. Fitch expects that MMC's key credit ratios will continue to approximate recent levels over the next 12-24 months.

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 company reported $1.4 billion of cash and equivalents at Sept. 30, 2016 and also maintains a $1.5 billion multi-currency unsecured revolving credit facility that expires in 2020. Fitch expects free cash flow (FCF) to continue increasing over time due in part to expense reductions and projected earnings growth. Favorably, restructuring expenses have recently been immaterial, and share repurchases are considered to be discretionary in order to preserve liquidity ($625 million repurchased through nine months ending Sept. 30, 2016 compared to $1.4 billion repurchased in all of 2015).

MMC's consolidated EBIT operating margin, debt-to-EBITDA ratio, and EBITDA-to interest coverage ratios have each been consistently strong and are projected to remain so. Given prospects for further solid earnings growth through year-end 2016 and 2017, Fitch expects these key metrics to remain well within guidelines for the current rating category. The ratings continue to reflect a continued trend of improved operating performance and stronger credit metrics that has persisted for several years.

The company has successfully demonstrated consistent and material key credit metric improvement over the past several years. At TTM Sept. 30, 2016, EBITDA-to-interest coverage was excellent at over 16x, and financial leverage as measured by debt-to-EBITDA remained moderate at 1.5x, within Fitch's expectations for the rating.

MMC has sustained improved performance levels due in part to a largely stable commercial pricing environment, an improving global macroeconomic environment, and reduced expenses. For the first nine months of 2016, MMC's Fitch-calculated consolidated operating EBIT margin was solid at 21%, an improvement over 19% at year-end 2015. Both the company's Risk & Insurance Services (RIS) and Consulting segments reported organic revenue growth and year-over-year margin expansion.

Looking forward, operating results could benefit from underlying insured exposure growth derived from a modestly growing global economy. Exposure growth benefits are partially offset by some 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 both MMC's RIS and Consulting segments.

The affirmation of MMC's 'F2' short-term ratings is based on its 'A-' Long-Term IDR and continues to reflect the strong liquidity position and supporting contingency programs, and proven access to the capital markets.

RATING SENSITIVITIES

Key rating triggers that could lead to a downgrade if observed over a sustained period of time include:

--Debt-to-EBITDA exceeding 2x; and

--EBITDA-to-interest expense coverage deteriorating to levels below 10x; 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.

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;

--Debt-to-EBITDA approaching 1.2x;

--EBITDA-to-interest expense in excess of 18x.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

Marsh & McLennan Companies, Inc.

--Short-Term IDR at 'F2';

--Commercial paper at 'F2';

--Long-Term IDR at 'A-';

--$250 million 2.30% senior debt due 2017 at 'A-';

--$250 million 2.55% senior debt due 2018 at 'A-';

--$300 million 2.35% senior debt due 2019 at 'A-';

--$500 million 2.35% senior debt due 2020 at 'A-';

--$500 million 4.80% senior notes due 2021 at 'A-';

--$250 million 4.05% senior debt due 2023 at 'A-';

--$350 million 3.3% senior notes due 2023 at 'A-';

--$600 million 3.50% senior notes due 2024 at 'A-';

--$500 million 3.50% senior debt due 2025 at 'A-';

--$600 million 3.75% senior debt due 2026 at 'A-';

--$300 million 5.875% senior debt due 2033 at 'A-'.

The Rating Outlook is Stable.

Additional information is available on www.fitchratings.com

THE ISSUER DID NOT PARTICIPATE IN THE RATING PROCESS OTHER THAN THROUGH THE MEDIUM OF ITS PUBLIC DISCLOSURE.

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=1016187

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016187

Endorsement Policy

https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Gretchen Roetzer
Director
+1-312-606-2327
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Martha 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
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Gretchen Roetzer
Director
+1-312-606-2327
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Martha 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
hannah.james@fitchratings.com