S&P Lowers MarshMac’s Ratings to ‘A+’ from ‘AA-‘

July 8, 2004

Standard & Poor’s Ratings Services announced that it has lowered its counterparty credit rating on Marsh & McLennan Cos. (MMC) to ‘A+’ from ‘AA-‘ and removed it from CreditWatch. The outlook is stable.

S&P also said that it has “assigned its ‘A+’ senior unsecured debt rating to MMC’s proposed issue of $800 million (with the possibility of modest upsizing) senior debentures of 10-year fixed and three-year floating-rate securities, which will be drawn down from the company’s existing shelf registration statement. MMC intends to use the net proceeds from this offering to finance the $1.95 billion cash acquisition of Kroll Inc.”

MMC announced in May that it would acquire Kroll, a global risk consulting company providing professional service expertise in security services, bankruptcy, turnaround and business recovery, forensic accounting, litigation support, crises management, and background screening (See IJ Website May 18).

S&P noted that these business lines generated $485 million in revenue in 2003. “The successful integration of Kroll’s operations would enhance MMC’s competitive position,” commented S&P credit analyst Steven Ader. “However, the downgrade reflects the adverse impact of funding the transaction with debt, the continued uncertainty of various regulatory issues on MMC’s operating subsidiaries, and the risks of integrating an organization that has significantly grown through recent acquisitions.”

S&P’s bulletin noted that “the ratings on MMC are supported by the extremely strong earnings and cash flow generation from its diverse and well-positioned subsidiaries led by Marsh Inc., the world’s leading broker. Partially offsetting these positive factors are the company’s somewhat aggressive financial leverage, as demonstrated by total obligations (adjusted for the net present value of noncancelable operating leases) to total capitalization of 51 percent as of year-end 2003.”

The rating agency said it “expects that total obligations (adjusted for the net present value of noncancelable operating lease payments) to total capitalization (including the net present value of noncancelable operating lease payments) and adjusted fixed-charge coverage, incorporating 10 percent imputed interest from noncancelable operating leases, will return to pre-transaction levels by year-end 2005.”

Topics Marsh McLennan

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