November 4, 2002 by Canadian Underwriter
Rating agency Standard & Poor’s has placed its ratings on Aon Corp., including a “A- counter-party credit rating”, on “credit watch” with negative implications following an announcement by the Chicago-based corporate brokerage house that it plans to raise about US$1 billion in funding to strengthen its balance-sheet and to replace maturing debt.
Aon recently disclosed its third quarter financial results, which reflect a 78% year-on-year increase in net income to US$128 million for the latest quarterly period. The company’s net income for the first nine months of this year rose by 140% to US$288 million. Aon notes that it’s 2001 income had been adversely impacted by the 9/11 terrorist attacks, which partly accounts for the dramatic year-on-year jump in net revenue for this year. Aon says it will not go through with previously announced plans to sell all or part of its underwriting operations due to “the [current] unfavorable mergers and acquisitions environment”. The company also used this opportunity to announce its plans to raise about US$500 million in equity-based funding and a further US$500 million in financing.
S&P says it is concerned over whether Aon will be able to raise the funding in question, as well as the use of the funds. The rating agency says it will affirm its existing ratings if Aon manages to raise the funds, specifically the equity-based portion, and if the funding is used to reduce the company’s debt position. At the end of September this year, Aon’s total outstanding debt amounted to about US$2.9 billion, equal to a debt-to-capital ratio of around 45%.