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Marsh & McLennan Issues $250M Notes

Zacks Equity Research

On Wednesday, Marsh & McLennan Cos. Inc. (MMC) announced the pricing of senior unsecured notes worth $250 million, the net proceeds of which will be used to redeem the 6.25% senior outstanding notes worth $250 million, due this month.

Accordingly, the latest long-term fixed rate notes are issued at a price of $99.904 and dated to mature on April 1, 2017.  These five-year fixed rate notes are projected to have a spread of 148 basis points (bps) over the US Treasuries, bearing a coupon rate of 2.3% and yield rate of 2.32%. Interest on the notes will be payable semi-annually, in equal instalments, commencing on October 1, 2012. The notes are projected to be settled on March 12, 2012.

Marsh & McLennan appointed Barclays Capital plc (BCS) and HSBC Holdings plc (HBC) as joint book-running managers for the offering. The company also appointed co-managers, which include BofA Merrill Lynch of Bank of America Corp. (BAC), Citigroup Inc. (C), Deutsche Bank Securities of Deutsche Bank AG (DB), Goldman, Sachs & Co. of Goldman Sachs Group Inc. (GS), JP Morgan Chase & Co. (JPM), Morgan Stanley (MS) and Wells Fargo Securities of Wells Fargo & Co. (WFC).

Besides, the notes carry a rating of “Baa2”, “BBB” and “BBB-” from Moody’s Investor Service of Moody’s Corp. (MCO), Fitch Ratings and Standards & Poor’s (S&P), respectively. The ratings agencies believe that the latest issue to refinance existing notes will not have any material effect on the credit profile, thereby maintaining its financial leverage of 2.7x recorded at the end of 2011.

Meanwhile, with a cash position of $2.1 billion at 2011-end, Marsh & McLennan is sufficiently liquid to retire its outstanding debt this month. Nevertheless, the ratings agencies appreciate the company’s move of refinancing the existing debt with another long-term debt given the low rate of interest, which reduces the borrowing cost and keeps the capital intact at the same time.

Hence, both Fitch and S&P have cast a stable outlook on the credibility of Marsh & McLennan based on its modest competitive position across its risk and insurance and consulting segments. Along with a healthy financial leverage and sound balance sheet, the company’s coverage ratios, debt-to-EBITDA of 1.5x and EBITDA-to-interest of 10.0x in 2011, showcase modest improvement in its financial position and scope for enhancing operating leverage, although sluggish macro-economic factors could act as a dampener in the near term.

Additionally, Fitch also affirmed Marsh & McLennan’s long-term issuer default rating (:IDR) at “BBB” along with both short-term IDR and commercial paper at “F2”.

Marsh & McLennan carries a Zacks Rank #3, which translates into a short-term Hold rating, while the long-term stance remains at Neutral.

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