Standard & Poor’s Rating Services lowered its counterparty credit rating on Marsh & McLennan Cos. (MMC) to “BBB+/A-2” from “A+/A-1.” The rating remains on credit watch with negative implications, where it was placed after New York State Attorney General Elliott Spitzer filed a civil complaint against MMC and its brokerage and consulting subsidiary, Marsh Inc.
The rating action reflects the revised expectations for Marsh’s earnings and cash flow given Marsh’s recent announcement that market service agreements (MSAs) are suspended. MSAs are agreements under which contingent commissions are received from insurers. The reduced earnings will diminish MMC’s ability to rapidly retire the short-term debt that was assumed in conjunction with the $1.9 billion acquisition of Kroll Inc. this past summer.
This rating action also reflects S&P’s belief that the Marsh franchise has been damaged by the allegations of bid rigging by the State of New York.
The ratings remain on credit watch negative to reflect the ongoing uncertainties of the situation, including the potential for further negative developments with respect to the bid rigging allegations and the possible adverse effects such developments might have on Marsh’s competitive position, earnings or cash flow. However, short of criminal charges being filed against the company by a legal authority, S&P believes that the diversified operational profile of MMC, with several well-positioned subsidiaries, will enable it to remain a viable and profitable entity into the future.
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