) rose 0.8% to $87.73 over a single trading session after receiving
ratings from Moody's Investors Service, the credit rating wing of
) on May 20, 2014.
Moody's provided the $250 million and $550 million senior unsecured
notes of Aon with a "Baa2" rating. The rating carries a stable
outlook. These two notes, guaranteed by the U.S. subsidiary, Aon
Corporation, are long-term notes with a maturity period of 10 and
30 years respectively. Aon intends to use the proceeds from the
notes for general corporate purposes.
The rating action came on the back of Aon's strong global presence.
Moody's is of the opinion that Aon is one of the major insurance
brokerage and consulting firms. The company's highly diversified
business that enables it to generate healthy profit margins was
also taken into account for the rating.
However, Moody's identified Aon's high debt levels and low fixed
charge coverage metrics as negatives that could dampen the
aforementioned positives. Moreover, soft business volumes in some
of Aon's businesses (particularly reinsurance) and possible
liabilities might affect the strengths of the company.
Moody's stated that the ratings could witness an upgrade if the
debt-to-EBITDA ratio of the company falls below 2.5x, the company
succeeds in maintaining the (EBITDA - capex) coverage of interest
above 6x and the net profit margin is maintained above 9%.
On the other hand, a downgrade in the ratings is likely if the
debt-to-EBITDA ratio is above 3.5x, (EBITDA - capex) coverage of
interest falls below 4x or if the net profit margin of the company
drops below 6%.
Strong scores from credit rating agencies play an important part
in retaining investor confidence in the stock and maintaining
creditworthiness in the market. We believe that Aon's present score
with the credit rating agency will help it write more business
Aon currently has a Zacks Rank #2 (Buy). Other players in the
insurance brokerage industry, which look attractive at current
Arthur J Gallagher & Co.
Erie Indemnity Company
). Both the stocks carry the same Zacks Rank as Aon.
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