Fitch Maintains Marsh & McLennan's 'A+' Sr Debt Rtg on Rating Watch Negative.Business Editors CHICAGO--(BUSINESS WIRE)--April 7, 2004 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. maintains the 'A+' senior debt rating of Marsh & McLennan Companies, Inc. (MMC See MultiMediaCard and Microsoft Management Console. ) on Rating Watch Negative. Fitch is also affirming MMC's short-term rating at 'F1'. Today's commentary follows Fitch's annual review of MMC and ongoing surveillance of its investment management operation's - Putnam - involvement in the current industry-wide mutual fund investigations. The organization continues to generate strong operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before and cash flow. Although equity market volatility and operating problems depressed assets under management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. growth over recent years and caused Putnam to realize a material decline in operating profits Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. , MMC's overall earnings have grown given very strong results in the insurance brokerage operation. The rating analysis also considers MMC's large cash demands, which include fixed obligations, rents, common-stock dividends, potential stock buybacks Stock buyback A corporation's purchase of its own outstanding stock, usually in order to raise the company's earnings per share. stock buyback See buyback. and employee retirement costs. In November 2003, following announcements that regulatory investigations into Putnam's activities were under way, Fitch placed MMC's ratings on Rating Watch Negative. At that time, the rating rationale was due to uncertainty related to how the investigations may impact Putnam's business franchise, operating earnings and asset retention. These issues will influence Fitch's opinion on the credit given for MMC's diversity in the rating analysis; diversity credit has been very high historically in supporting the 'A+' senior debt rating. In the fourth quarter 2003, Putnam lost $54 billion in assets through net redemptions. While this is a material amount of business relative to the $272 billion of assets under management at the start of the quarter, Putnam remained very profitable with pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating earnings of $133 million for the quarter. At times during the first quarter 2004, management commented that asset outflows slowed significantly. Fitch will continue to monitor issues surrounding Putnam. MMC's ratings will likely be affirmed at the current rating if the following occur: Putnam's assets under management continue to demonstrate stabilizing trends (or growing trends); Any potential regulatory fines can be recaptured through operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. within a reasonably short time-frame; and fines are not financed by issuing debt, commercial paper or other borrowings. Fitch believes if the above items occur, then Putnam will likely emerge from the current investigations 'bruised but not broken'. Further, the qualitative consideration given to the company's diverse operating profile will remain consistent with past reviews. If actual results differ over the coming months, then Fitch will review the developments and potentially take an alternative rating action, including a one-notch downgrade Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. . Fitch recognizes that the cash flow quality in MMC remains very strong, supported by strong results in the risk and insurance services business over the past several quarters. If needed and management is willing, the company could also slow its stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. programs and re-direct cash flow to address any needs that result following the Putnam investigation. Fitch has noted that the original investigations were focused on market timing activity inside a few Putnam funds. Over recent months, the investigations have broadened to include additional issues. If 'new' issues continue to surface in the near term, Fitch may conclude that the scope of Putnam's problems is larger than current disclosure indicates - and depending on the scale of any new issues, may need to revisit re·vis·it tr.v. re·vis·it·ed, re·vis·it·ing, re·vis·its To visit again. n. A second or repeated visit. re the current rating. Fitch anticipates financial leverage will not move materially from the recent run-rate 40%, measured by debt to capital excluding accumulated other comprehensive gains or losses. Continued strong earnings expectations are anticipated to add to stability in financial leverage, allowing various cash demands to be soundly met. Fitch further anticipates debt-to-EBITDA to remain at 1.8 times or less. Note: These ratings were initiated by Fitch as a service to users of Fitch ratings. The ratings are based primarily on public information. Entity/Issue/Type Action Rating Marsh & McLennan Companies, Inc. -- Senior debt Remains on Rating Watch Negative 'A+'; -- Commercial paper Affirm To ratify, establish, or reassert. To make a solemn and formal declaration, as a substitute for an oath, that the statements contained in an Affidavit are true or that a witness will tell the truth. 'F1'. Marsh USA Inc. -- Commercial paper Affirm 'F1'. |
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