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Fitch Affirms Aon's Ratings; Outlook StableFitch Ratings has affirmed all of Aon plc's (Aon) ratings, including the Issuer Default Rating (IDR) and senior debt ratings at 'BBB+', and the commercial paper ratings at 'F2'. The Rating Outlook is Stable. A complete list of ratings follows at the end of this release. KEY RATING DRIVERS The affirmation reflects Aon's strong competitive position, balance sheet and cash flow generation, very good financial flexibility, and manageable financial leverage which are all within guidelines for the rating category. Fitch believes Aon's liquidity profile is strong with cash and short-term investments of roughly $600 million as of Sept. 30, 2014. Cash flow remains significant with earnings-based EBITDA interest coverage of roughly 10x. The company generated $883 million of cash flow from operations through nine months 2014, following $1.6 billion for the full year 2013 and $1.4 billion in 2012. Fitch notes that the fourth quarter is typically Aon's strongest cash flow generator. Financial flexibility has been improving year-over-year. Interest coverage has been improving due to higher EBITDA, reduced pension liabilities and restructuring program expenses, decreasing capital expenditures, and only moderate changes to debt levels. Although Aon's merger and acquisition activity has increased in the last few quarters, it has been below its normal levels following the Hewitt acquisition. At Sept. 30, 2014, financial leverage as measured by debt-to-EBITDA was roughly 2.2x, and debt-to-total capital, equity credit adjusted, was roughly 41%, in line with historical levels. Fitch expects both ratios to remain relatively stable with modest improvement, assuming continued strong EBITDA growth and anticipated capital planning through 2014 including share repurchases. Leverage is currently at levels that Fitch views as solid for the rating category. Fitch views the debt issued in 2014 favorably overall as the new senior debt was issued at an attractive rate with a long-dated maturity, resulting in an improved liquidity profile. Fitch expects that the increase to financial leverage will be manageable and within both Fitch's expectations for the company and the broker sector credit factor guidelines for the current rating category. The ratings continue to reflect Aon's favorable competitive position among the top three global brokers, with major operations in (re)insurance brokerage and human capital consulting/outsourcing. The company continues to demonstrate its ability to retain clients and expand new business while improving profitability. Partially offsetting these positive factors are continued earnings pressure from pension liabilities, competitive insurance market conditions, and the global economic downturn. Organic growth in the brokerage segment was on par with the peer average in 2013. Favorably, the company reported organic revenue growth in both the Risk Solutions and HR Solutions businesses in 2013 and through the first nine months of 2014. Fitch believes that Aon's acquisition of Hewitt has resulted in positive business and operational synergies, with reasonable integration risk. Aon expects cumulative annual expense savings of $402 million to be fully realized by the end of 2014 which is $90 million above original forecasts. Fitch also believes that the current management team has a very good track record as far as the execution of strategic plans and expense cutting. As of fourth quarter 2013 (4Q'13), 100% of the $429 million restructuring costs had been incurred and the Hewitt program was closed as expected. RATING SENSITIVITIES
--A sustained strong improvement in operating performance on an absolute basis and relative to peers with operating EBIT consistently over $1 billion and an operating EBIT margin near 15%; --A run-rate debt-to-EBITDA ratio less than 1.5x; --Or interest coverage as measured by an EBITDA-to-interest ratio more than 12x. The key rating triggers that could result in a downgrade include the following: --A sustained increase in the debt-to-EBITDA ratio to more than 2.25x; --A deterioration of the company's average EBITDA-to-interest expense ratio to lower single digits; --Or an impairment to goodwill that would materially impact the balance sheet and related ratios. Fitch has affirmed the following ratings: Aon plc --IDR at 'BBB+'; --$350 million 4% senior debt due 2023 at 'BBB+'; --$600 million 3.5% senior debt due 2024 at 'BBB+'; --EUR500 million 2.875% senior debt due 2026 at 'BBB+'; --$256 million 4.25% senior debt due 2042 at 'BBB+'; --$250 million 4.45% senior debt due 2043 at 'BBB+'; --$550 million 4.6% senior debt due 2044 at 'BBB+'; --Short-term IDR at 'F2'; --Commercial paper at 'F2'. Aon Corporation --IDR at 'BBB+'; --$600 million 3.5% senior debt due 2015 at 'BBB+'; --$500 million 3.125% senior debt due 2016 at 'BBB+'; --$600 million 5% senior debt due 2020 at 'BBB+'; --$521 million 8.205% junior subordinated deferrable interest debentures due 2027 at 'BBB-'; --$300 million 6.25% senior debt due 2040 at 'BBB+'; --Short-term IDR at 'F2'; --Commercial paper at 'F2'. Aon Services Luxembourg & Co S.C.A. --IDR at 'BBB+'. The Rating Outlook is Stable. Additional information is available on Fitch's web site at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' (Aug. 14, 2014); --'Treatment and Notching of Hybrids in Non-financial Corporate and REIT Credit Analysis' (Dec. 23, 2013); --'Short-Term Ratings Criteria for Non-Financial Corporates' (Aug. 5, 2013); --'U.S. Insurance Broker Industry Sector Credit Factors' Special Report' (May 4, 2012). Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393 Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=821568 Short-Term Ratings Criteria for Non-Financial Corporates http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714415 U.S. Insurance Broker Industry Sector Credit Factors http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=677409 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=944655 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. |
