Fitch Ratings upgraded the previously assigned Issuer Default Rating (:IDR) and senior unsecured debt rating to “BBB+” from “BBB” of Marsh & McLennan Companies, Inc. (MMC). The rating carries a stable outlook.
The ratings upgrade came on back of the company’s consistent improvement in its operating performance and robust credit metrics since the second half of 2010. The EBIT operating margin, debt-to-EBITDA ratio and EBITDA-to interest coverage ratios of Marsh & McLennan have been strong enough to be accounted for in the ratings upgrade.
Marsh & McLennan, which occupies an important position in the insurance brokerage and consulting market, has a strong financial flexibility which is reflected in the ratings. Moreover, settling down the periodic restructuring charges as well as regulatory and legal issues that had been adversely affecting the company financials for several years are also reflected in the ratings.
Fitch expects the gradual improvement in the commercial pricing and macroeconomic environment as well as Marsh & McLennan’s manageable pension contributions to augment its operating performance in the upcoming periods. However, potential goodwill risk and occasional litigation distractions are some of the factors that might dwarf the positives.
Fitch stated that the ratings or rating outlook might be revised upward owing to sustained consolidated EBIT operating margins of 15% or more along with debt-to-EBITDA ratios consistently below 1.3 and EBITDA-to-interest ratios maintained in excess of 12.0x. On the other hand, a downgrade in rating or rating outlook could result from deterioration in the company's EBITDA-to-interest coverage ratio below 8.0x and the debt-to-EBITDA ratio above 2.0x. Material charges from litigation or regulatory issues might also invite a downward revision in the ratings.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining the creditworthiness in the market. We believe that the company’s present score with the credit rating agencies will help it write more business going forward.
Last September, Standard & Poor's Ratings Services (S&P) reiterated the 'BBB-' counterparty credit rating, on Willis Group Holding PLC (WSH), another insurance broker. The rating was downgraded to stable from positive based on the rating agency’s expectation that Willis will be unable to meet its standards.
Marsh & McLennan currently carries a Zacks Rank #3 (Hold). Among others from the industry, Ehealth Inc. (EHTH) carries a favorable Zacks Rank #1 (Strong Buy) whereas Brown & Brown Inc. (BRO) carries a Zacks Rank # 2 (Buy) and are worth noting.
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