S&P Sees No Change for Willis’ Ratings from Goodwill and Remuneration Changes

December 21, 2012

Standard & Poor’s Ratings Services has said that its ratings on Willis Group Holdings PLC (‘BBB’-/Stable/–) are unchanged “following the company’s announcement of charges related to goodwill impairment and a change in its remuneration policy”, both of which, S&P said, “are noncash items and will be reflected in 2012 financials.”

S&P explained that the “goodwill impairment charge is in the after-tax range of $450 million-$500 million and is primarily related to the company’s North American business. Willis acquired Hilb, Rogal & Hobbs Co. in 2008 for about $2.1 billion, which increased Willis’ market penetration in North America, but at the same time weak economic conditions negatively affected its construction and employee benefits business.

“The second charge relates to the replacement of annual cash retention awards in favor of annual cash bonuses, similar to industry practices per our understanding.” S&P added that it does not “expect the level of incentive remuneration to change, only the payout characteristics, which excludes a repayment requirement upon voluntary employee resignation.

“As a result of this change” the bulletin continued, “remaining unamortized pretax balance of $205 million from remaining cash retention awards is being written off. Furthermore, the company would accrue a full-year 2012 bonus under the new compensation plan of $250 million to be paid in 2013.

“While the combination of these charges will result in GAAP net losses for full-year 2012, we view these as nonrecurring and we would adjust for these charges while analyzing Willis’ operating and financial metrics. Furthermore, these charges have limited impact on our opinion of Willis’ ongoing revenue generation and earnings capability, which we believe are adequately captured by our current ratings. Therefore, our view of company’s credit profile is unaffected.”

Source: Standard & Poor’s

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