Standard & Poor’s Ratings Services has revised its outlook on Marsh & McLennan Cos. to stable from negative, and has affirmed its ‘BBB-‘ long-term and ‘A-3’ short-term counterparty credit ratings on the company.
“The outlook revision reflects our improved view of MMC’s prospective earnings,” explained credit analyst Laline Carvalho. S&P added that “after several years of restructuring the business and a number of legal and regulatory settlements, MMC’s operating results began showing more significant improvement starting in the fourth quarter of 2010.
“Although we view this improvement as relatively recent, we believe significant efforts the current management team has taken to refine the group’s strategy and lower the operational and financial risks of the organization in recent years should help MMC produce improved operating results going forward. Among these efforts were the significant reduction in debt at the organization, streamlining the operations, the divestiture of the underperforming Kroll unit, and an improved operating strategy at Marsh.”
In reflecting the lack of any material restructuring or legal charges, S&P noted that “MMC reported significantly improved EBIT and EBITDA fixed charge coverage of 4.9x and 6.1x, respectively, through the first nine months of 2011 (compared with 3.0x and 4.2x, respectively, during the same period in 2010). We expect MMC to continue to report improved operating results through the remainder of 2011 and into 2012, reflecting our expectation of stronger underlying earnings at its business segments, reduced exposure to litigation and regulatory actions, and no further material restructuring actions at the organization.”
The rating agency also explained that the stable outlook is due to its expectation that MMC will report “good adjusted EBITDA margins above 12 percent for 2011. We also expect 2011 EBIT and EBITDA fixed charge coverage to be above 4.5x and 5.5x, respectively. We believe MMC will likely report similarly strong operating results in 2012, with adjusted EBITDA margins above 15 percent, and EBIT and EBITDA fixed charge coverage above 4.5x and 5.5x, respectively. We also expect that MMC will no longer report any further material restructuring or legal settlement charges over the medium term.”
S&P also said it expects “MMC’s liquidity to remain good, backed by a strong cash balance. We also expect adjusted total obligations to adjusted EBITDA to likely remain below 3x over the next two years. Underlying revenue growth will likely remain modest over the next two years, reflecting continued difficult macroeconomic conditions.
“Factors that could lead us to raise our ratings on MMC over the next 12 months would include the company’s ability to meet our expectations and continue to demonstrate sustainable improvements in operating results, good liquidity, and the continuation of stability of strategy and staff at the organization. Factors that could lead us to lower the ratings on MMC would include significantly lower-than-expected operating performance and fixed charge coverage metrics, or significant deterioration in the company’s liquidity.”
Source: Standard & Poor’s
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