S&P Places Aon on CreditWatch/Negative

August 25, 2008

Standard & Poor’s Ratings Services has placed its ‘BBB+’ counterparty credit rating on Aon Corp. on CreditWatch with negative implications, following the announcement that Aon has “signed a definitive agreement to acquire unrated, U.K.-domiciled (Bermuda incorporated) reinsurance and risk intermediary Benfield Group Ltd.” (See IJ web site – https://www.insurancejournal.com/news/international/2008/08/22/92993.htm).
“The rating action reflects the uncertainty regarding the transaction’s effects on the company’s cash flows, capital structure, and coverage ratios (adjusted fixed-charge coverage) in light of its continued support of its capital-allocation priorities (i.e., share-repurchase program, pension liability management, and acquisition funding),” said S&P.

“In addition, it reflects our concern about integration risks and the continuation of adverse market conditions borne from underlying premium-rate declines the re/insurance brokerage marketplace is experiencing, as the company’s operations and franchises are highly complementary, and weaknesses in general economic conditions.”

However, S&P indicated that it expects “the Benfield acquisition will further solidify Aon’s competitive market position and well-established global presence in the risk and insurance brokerage industry as well as further diversify and complement Aon’s business platform.

“Following the close of the transaction, Aon intends to integrate the Benfield business with its existing reinsurance operations (Aon Re Global) and operate the division globally under the newly created Aon Benfield Re brand”

S&P added that it “expects to either affirm or lower the rating on Aon once we have completed our analysis of Benfield and the pro forma consolidated operating performance and capital structure.”

Credit analyst Neil Stein stated: “If we are satisfied with the pro forma cash flows, adjusted debt to EBITDA, and adjusted fixed-charge coverage, we will likely to affirm the rating,” said Standard & Poor’s. “Alternately, if our analysis indicates that the pro forma coverage deteriorates to 5.0x, we could affirm the rating and assign a negative outlook or lower the rating–but by no more than one notch.”

Source: Standard & Poor’s – www.standardandpoors.com

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