Standard & Poor's Ratings Services ("S&P") reiterated
the 'BBB-' counterparty credit rating, on
Willis Group Holding PLC
). The rating was downgraded to stable from positive.
The rating affirmation came on the back of its dominant market
position and solid sales procedures driving organic growth and
margin expansion. However, lack of earnings diversification,
exposure to underwriting cycles, risks associated with the
implementation of strategic and operational initiatives, modest
risk profile and regulatory and litigation risks counter the
The downward revision of the outlook was based on the rating
agency's expectation that Willis will be unable to meet its
standards. The rating agency noted that the company's organic
growth was lower than that of its peers. Also, S&P expects
expenses to rise at a faster rate than revenue increase, thus
inducing margin contraction in 2012.
S&P estimates better performances at few property and casualty
segments, higher retention levels, initiatives to strengthen market
position and widening global footprint to help Willis Group achieve
organic growth in the 2%-3% range in 2012 and in the 3%-4% range
The rating agency also projects adjusted EBITDA margin to be
between 23%-25% and adjusted total obligations-to-adjusted EBITDA
below 3.5x in 2012 and 2013.
S&P stated that it might consider a rating upgrade in the next
two years provided Willis delivers adjusted total
obligations-to-adjusted-EBITDA lower than 3.0x and adjusted EBITDA
fixed-charge coverage more than 5.5x and solidifies its market
presence as well as sustains superior operating margins by
effective implementation of revenue and expense initiatives.
The rating agency, however, cautions that excessive use of debt
leverage along with operational, legal, and regulatory risks will
likely weigh on any positive action.
GALLAGHER ARTHU (AJG): Free Stock Analysis
AON PLC (AON): Free Stock Analysis Report
MARSH &MCLENNAN (MMC): Free Stock Analysis
WILLIS GP HLDGS (WSH): Free Stock Analysis
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On the flip side, the ratings will be subject to downgrade if
Willis loses market share or face hiccups in brand recognition,
endangering its market presence, or if adjusted total
obligations-to-adjusted EBITDA moves beyond 4x or adjusted EBITDA
fixed charge coverage falls below 4x, faces liquidity crunches and
margin contracts radically. These, coupled with regulatory or legal
risks could also affect ratings.
Rating affirmations or upgrades from credit rating agencies play an
important part in retaining investor confidence in the stock as
well as maintaining creditworthiness in the market. On the other
hand, rating downgrade adversely affects the business, besides
increasing costs of future debt issuances.
We retain our Neutral recommendation on Willis Group. The
quantitative Zacks Rank for Willis Limited is currently "3,"
indicating no clear directional pressure on the shares over the
Arthur J Gallagher & Co.
Marsh & McLennan Companies, Inc.
), which closely compete with Willis also share a Zacks Rank #