MMC rating remains despite possible Putnam transaction

Standard & Poor’s Ratings Services says Marsh Marsh & McLennan Cos.’s (NYSE:MMC) ‘BBB’ rating will not be affected by the Company’s plan to complete a market check of its Putnam Investments unit, in order to determine its value.
S & P’s says it interprets this to mean that MMC is “considering a transaction involving Putnam, including a potential sale.” However, the ratings service provider says it is not currently taking a rating action on MMC.
S & P’s says it does not view Putnam as an integral part of MMC. However, S&P’s does say “Putnam does provide a meaningful contribution to MMC’s earnings profile, constituting 11.4% and 19.0% of MMC’s consolidated revenue and earnings, respectively, as of June 30, 2006,” “Accordingly, any prospective rating action relative to the sale of Putnam would weigh the balance between sale proceeds and the application thereof relative to Putnam’s prospective earnings and cash-flow profile.”
The counterparty credit rating on MMC is based on its competitive position, led by Marsh Inc. and supplemented by the diversified operating profiles of the Mercer Inc., Putnam Investments, Guy Carpenter, and Kroll Inc. operating subsidiaries, according to S&P’s.
Traditionally, these subsidiaries have supported MMC’s strong operating profile. However, S&P’s says the material competitive and operational uncertainties resulting from the implementation of management’s new business model, which addresses the elimination of contingent commissions, is offsetting these strengths are.
“This meaningful loss of revenue and earnings stems from settlements with the New York Attorney General and Superintendent of Insurance related to allegations of bid rigging and other anticompetitive actions,” S&P’s reports. S&P’s says its prospective view of MMC’s financial profile is dependent on the recovery of Marsh Inc.’s market share, as supported by positive organic growth.
“Although MMC’s financial flexibility has materially improved in 2005, as demonstrated by the September 2005 public issuance of $1.3 billion in medium-term senior debt and the $475 million refinancing of its headquarters facility, it remains a weakness to the rating,” S&P’s explains. “In summary, MMC is faced with the challenge of rebalancing its financial leverage.”