S&P Lowers Credit Ratings on MMC

Standard & Poor’s Ratings Services lowered its counterparty credit and senior debt ratings on Marsh & McLennan Cos. Inc. (MMC) to ‘BBB/A-2’ from ‘BBB+/A-2’. The ratings remain on CreditWatch with negative implications.

“The rating action reflects Standard & Poor’s belief that MMC’s cash flows for 2005 and, to a lesser extent, for 2006 will be lower than had previously anticipated, due to Standard & Poor’s belief that the net effect of expense reductions will take longer than had anticipated,” said Standard & Poor’s credit analyst Steven Ader.

Standard & Poor’s current ratings continue to reflect its expectations of diminished cash flows from the termination of MSAs; the modest adverse impact (up to 5 percent revenue loss) to Marsh’s business outlook, exacerbated by a softening pricing environment; and it assumes the successful restructuring of the outstanding credit facilities (for which waivers are in place through Dec. 30, 2004). The current ratings also incorporate the expectation that MMC will have the financial resources to manage any settlements reached in connection with outstanding legal and regulatory investigations.

In addition to $1.9 billion in short-term debt that will be financed through the prospective credit facility, the current debt structure includes $1 billion in debt payable in 2007. Accordingly, any material shortfall in cashflow generation is significant.

The ratings were placed on CreditWatch Negative on Oct. 15, 2004, after the New York State Attorney General filed a civil complaint against MMC and its brokerage and consulting subsidiary Marsh Inc. (Marsh; not rated). The ratings remain on CreditWatch Negative to reflect the uncertainty of legal and regulatory settlement amounts, the restructuring of the expiring credit facilities, the adverse impact on Marsh’s business results, and the prospective dividend policy relative to expected cash flows. Under the proposed structure, the facilities will be supported by the guarantees of Marsh Inc., Putnam Investments Trust, and Mercer Inc. In accordance with criteria for structural subordination of senior debt, a drawdown exceeding approximately $1.9 billion would disadvantage the senior debt and short-term credit outstanding to a sufficient extent to result in a one-notch downgrade in the senior debt and short-term credit rating to ‘BBB-/A-3’ from ‘BBB/A-2’.

“Short of criminal charges being filed against the company by a legal authority, Standard & Poor’s continues to believe that the diversified operational profile of MMC, with several well-positioned operating businesses, will enable it to remain a viable and profitable entity into the future,” Ader added.