Fitch Affirms Willis Towers Watson's Ratings at 'BBB'; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) and senior unsecured debt ratings of Willis Towers Watson PLC (WLTW), Willis North America Inc., and Trinity Acquisition plc at 'BBB'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

Fitch upgraded WLTW's ratings on Jan. 6, 2016 following the merger of Willis Group Holdings (Legacy Willis) and Towers Watson & Co. (TW). Driving the upgrade was relatively low debt utilization at TW, which fosters lower financial leverage for the combined WLTW, relative to Legacy Willis's average debt/EBITDA of 3.0x for 2011 - 2014.

Since the transaction closed WLTW has issued approximately $1.6 billion in senior notes, with the proceeds to be used to repay amounts under bridge loan financing, $300 million of maturing public debt and borrowings under bank credit facilities. Based on both WLTW's earnings guidance as well as a review of first quarter 2016 results, Fitch estimates full year 2016 debt/EBITDA will remain below the ratings trigger of 2.5x.

Lower leverage, coupled with the inherent profitability of the merged entity is also expected to boost interest coverage to low double-digits. For the first three months of 2016 WLTW reported EBITDA/interest expense of 11.1x, a meaningful improvement compared with Legacy Willis's historical performance. Operating EBIT margin for the first three months of 2016 was 13.8% and included $52 million in integration expenses and a $50 million litigation provision for loss contingencies.

The merger created a larger, more diverse entity with operating franchises in several non-capital-intensive fee and commission-based businesses including: insurance brokerage, and consulting services in employee benefits, human resources and risk and capital management. There are further opportunities to leverage existing TW relationships to increase penetration in the larger U.S. P/C corporate market and to expand TW's international profile.

Key challenges and sources of uncertainty include: integration of corporate and systems function, realization of anticipated expense savings, and retaining key employee and clients going forward.

The affirmation of WLTW's ratings continues to reflect the company's strong liquidity profile with good cash flow generation and increasing financial flexibility, favorable competitive position as one of the top three global insurance brokers, and positive organic growth.

RATING SENSITIVITIES

Key rating triggers that could result in a downgrade include a material near-term change in financial profile or operating performance of the combined company, a failure to maintain EBITDA-to-interest ratios of 7x or higher, an increase in financial leverage evidenced by debt/EBITDA above 2.5x, or a material goodwill impairment that casts doubt on the new entities' ability to generate future earnings and cash flows.

Key rating triggers that could result in an upgrade include realization and evidence of the benefits of the TW and Gras Savoye mergers with continuing improved margins and ultimate improvement in the debt-to-EBITDA ratio and EBITDA-to-interest ratios in line with higher rated peers.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

Willis Towers Watson PLC (formerly Willis Group Holdings)

--Long-Term IDR at 'BBB';

--5.75% senior notes due 2021 at 'BBB'.

Willis North America Inc.

--Long-Term IDR at 'BBB';

--6.2% senior notes due 2017 at 'BBB';

--7.00% senior notes due 2019 at 'BBB'.

Trinity Acquisition plc

--Long-Term IDR at 'BBB';

--4.625% senior notes due 2023 at 'BBB';

--6.125% senior notes due 2043 at 'BBB'.

--3.5% senior notes due 2021 at 'BBB';

--2.125% senior notes due 2022 at 'BBB';

--4.4% senior notes due 2026 at 'BBB'.

The Rating Outlook is Stable.

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

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005442

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005442

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Martha M. Butler, CFA, +1-312-368-3191
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gretchen Roetzer, +1-312-606-2327
Director
or
Committee Chairperson
Julie A. Burke, CPA, CFA, +1-312-368-3158
Managing Director
or
Media Relations:
Hannah James, New York, +1 646-582-4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Martha M. Butler, CFA, +1-312-368-3191
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gretchen Roetzer, +1-312-606-2327
Director
or
Committee Chairperson
Julie A. Burke, CPA, CFA, +1-312-368-3158
Managing Director
or
Media Relations:
Hannah James, New York, +1 646-582-4947
hannah.james@fitchratings.com