Nov 13 - Fitch Ratings expects to assign a 'BBB+' rating to the $300 million
30-year senior unsecured notes issuance planned by Aon plc (Aon), the
ultimate parent company. Fitch also assigned a 'BBB+' Issuer Default Rating
(IDR) to Aon. The new notes are fully and unconditionally guaranteed by Aon
Corporation (Aon Corp.) and the ratings are therefore based on Aon Corp.'s
existing 'BBB+' IDR. The net proceeds from this new senior debt issuance will
refinance up to $300 million of Aon Corp.'s existing 8.205% junior subordinated
debt maturing in 2027.
Additionally, Fitch has affirmed all of Aon's related ratings, including
existing senior debt ratings at 'BBB+', and commercial paper rating at 'F2'. The
Rating Outlook is Stable. A complete list of ratings follows at the end of this
release. The affirmation reflects Aon's strong competitive position, balance
sheet and cash flow generation, very good financial flexibility, and financial
leverage that are within guidelines for the rating category.
Fitch views the proposed debt exchange favorably as the new senior debt will
likely be issued at an attractive rate given current market conditions and will
have a longer-dated maturity, resulting in an improved liquidity profile with
reduced refinancing risk. Fitch does not expect material change to pro forma
financial leverage following the debt issuance since the proceeds will be used
to refinance existing subordinated debt and the related premium to current
bondholders will be paid in cash.
At Sept. 30, 2012, financial leverage as measured by debt to total capital,
equity credit adjusted, was 31.9%, and annualized debt-to-EBITDA was roughly
2.0x, which remains higher than historical levels due to the inclusion of
additional debt related to the Hewitt Associates (Hewitt) acquisition, but lower
than year-end 2011 levels due to debt repayments.
Aon's liquidity profile is solid with unrestricted cash and short-term
investments of roughly $800 million. Cash flow remains strong with
earnings-based interest coverage of roughly 9.4x as of Sept. 30, 2012. The
company generated $867 million and $1 billion of cash flow from operations
through nine months 2012 and for the full-year 2011, respectively.
The ratings continue to reflect Aon's favorable competitive position among the
top three global brokers, with major operations in insurance brokerage,
reinsurance brokerage and human capital consulting/outsourcing. The company
continues to demonstrate its ability to retain clients and grow new business
while improving profitability.
Partially offsetting these positive factors is the fact that Aon's earnings have
been pressured by ongoing restructuring expenses, competitive insurance market
conditions, and the global economic downturn. Favorably, the company reported
increased organic revenue growth in both its Risk Solutions (insurance
brokerage) and HR Solutions (consulting/outsourcing) business through the first
nine months of 2012.
Fitch believes that in the long term, Aon's acquisition of Hewitt will result in
positive business and operational synergies, with reasonable integration risk.
Aon expects cumulative annual expense savings of $355 million to be fully
realized by the end of 2013. Fitch also believes that the current management
team has a very good track record related to the execution of strategic plans
and expense cutting, and therefore Fitch expects any remaining integration risk
will be manageable. As of Sept. 30, 2012, Aon was on track to meet its stated
The key rating triggers that could result in an upgrade include 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, and interest
coverage as measured by an EBITDA-to-interest ratio more than 12x.
The key rating triggers that could result in a downgrade include 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, and
any impairment to goodwill that would materially impact the balance sheet and
Fitch expects to assign the following rating:
--Senior debt due 2042 'BBB+'.
Fitch has assigned the following rating:
Fitch has affirmed the following ratings:
--IDR at 'BBB+';
--$225 million 7.375% senior debt due Dec. 14, 2012 at 'BBB+';
--$600 million 3.5% senior debt due Sept. 30, 2015 at 'BBB+';
--$500 million 3.125% senior debt due May 27, 2016 at 'BBB+';
--$600 million 5% senior debt due Sept. 30, 2020 at 'BBB+';
--$687 million 8.205% junior subordinated deferrable interest
debentures due Jan. 1, 2027 at 'BBB-';
--$300 million 6.25% senior debt due Sept. 30, 2040 at 'BBB+';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.
Aon Services Luxembourg & Co S.C.A.
--IDR at 'BBB+';
--Eur500 million 6.25% senior debt due July 1, 2014 at 'BBB+'.
The Rating Outlook is Stable.
Additional information is available on Fitch's web site at
'www.fitchratings.com'. The ratings above were solicited by, or on behalf of,
the issuer, and therefore, Fitch has been compensated for the provision of the
Applicable Criteria and