Marsh can cope with debt burden after JLT acquisition: S&P

Following an in-depth business and financial review, S&P Global Ratings believes Marsh&McLennan (MMC) will likely be committed to and able to de-lever back to a range appropriate for the firm’s current rating despite a very significant increase in debt to fund its acquisition of insurance broker JLT.

MMC is acquiring re/insurance broker Jardine Lloyd Thompson Group (JLT) for $6.4 billion.

Fitch Ratings has placed the ratings of Marsh & McLennan Companies (MMC) on Rating Watch Negative following the agreement.

The Rating Watch Negative reflects the expected increase in near-term debt and related increase to financial leverage as measured by debt to EBITDA, above levels acceptable for the current rating category, Fitch said.

A bridge loan agreement with Goldman Sachs provides for commitments in the aggregate principal amount of £5.2 billion and will mature within 364 days after the borrowing date.

But S&P has now affirmed MMC’s 'A-' long-term issuer credit rating and has removed the rating from CreditWatch Negative, where it was placed after the company's announcement that it signed a definitive agreement to acquire JLT.

S&P analysts believe that MMC will be committed to and able to de-lever back to the mid-2x area over the next two years following its acquisition of JLT. At the same time, the rating agency has kept a negative outlook for MMC, reflecting the possibility of a downgrade if the company does not de-lever to the mid-2x level within the next two years per S&P’s base-case expectations.

S&P noted that MMC will hold elevated leverage levels during the interim period and that there are execution risks associated with such a large transaction.

The negative outlook primarily reflects S&P’s expectation for credit-protection measures to be weaker than levels supporting the current rating for up to two years following the expected JLT acquisition, as well as execution risk associated with the large transaction, the rating agency said.

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