April 13, 2017 / 3:52 PM / 2 years ago

Fitch Affirms Willis Towers Watson's Ratings at 'BBB'; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, April 13 (Fitch) Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) and senior unsecured debt ratings of Willis Towers Watson PLC (WLTW), Willis North America Inc., and Trinity Acquisition plc at 'BBB'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS Fitch upgraded WLTW's ratings following the merger of Willis Group Holdings (Legacy Willis) and Towers Watson & Co. (TW) in January 2016. Lower financial leverage for WLTW, relative to Legacy Willis's average debt/EBITDA of 3.1x for 2012-2015, was a key driver for the upgrade. Debt/EBITDA adjusted for one-time transaction, integration and legal settlement costs declined to 2.5x for 2016, compared with 4.1x for 2015, and Fitch estimates that run-rate debt/EBITDA will remain below the rating downgrade trigger of 2.75x. WLTW's ratings reflect the company's competitive position as one of only a few advisory, broking and solutions companies possessing the global operating presence, scale, broad product line, and distribution platforms to compete effectively in a changing global marketplace. WLTW's solid, viable franchise is demonstrated in its ability to retain clients and grow organically. WLTW continues integration efforts to create a unified platform for global growth, including pursuing opportunities to leverage TW's existing relationships to increase penetration in the larger U.S. property/casualty (P/C) corporate market and to expand TW's international profile. Operating EBIT margin declined materially in 2016. Due to a significant increase in amortization of intangibles, however, EBITDA margin adjusted for non-recurring items declined more modestly to 19.3% in 2016, compared with Legacy Willis's average of 22.4% for 2012-2015. With additional merger savings expected to come through in 2017 and 2018, and as restructuring costs subside and expense reductions are implemented, margins should expand in line with WLTW's financial objectives for 2018 that include 3%-4% organic revenue growth, 1%-2% cost growth, and a 25% EBITDA margin. WLTW has a strong liquidity profile with significantly improved cash flow generation and increasing financial flexibility. Operating cash flow increased to $920 million for 2016, from $243 million the prior year, with the additions of TW and GS & Cie Groupe SAS (Gras Savoye). Fitch expects higher free cash flow over time due in part to projected annual cost savings of $325 million starting in 2018 from an operational improvement program and as merger efficiencies materialize. RATING SENSITIVITIES Key rating triggers that could result in a downgrade include a material near-term change in financial profile or operating performance, a failure to maintain EBITDA-to-interest ratios of 7x or higher, an increase in financial leverage evidenced by debt/EBITDA (adjusted for large one-time items) above 2.75x, or a material goodwill impairment that casts doubt on the new entities' ability to generate future earnings and cash flows. Key rating triggers that could lead to an upgrade include realization and demonstration of the benefits of the TW and Gras Savoye mergers with continuing improved margins and ultimate improvement in the debt-to-EBITDA and EBITDA-to-interest ratios in line with higher rated peers. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings: Willis Towers Watson PLC (formerly Willis Group Holdings) --Long-Term IDR at 'BBB'; --5.75% senior notes due 2021 at 'BBB'. Willis North America Inc. --Long-Term IDR at 'BBB'; --7.00% senior notes due 2019 at 'BBB'. Trinity Acquisition plc --Long-Term IDR at 'BBB'; --3.5% senior notes due 2021 at 'BBB'; --2.125% senior notes due 2022 at 'BBB'; --4.625% senior notes due 2023 at 'BBB'; --4.4% senior notes due 2026 at 'BBB'; --6.125% senior notes due 2043 at 'BBB'. The Rating Outlook is Stable. Contact: Primary Analyst Martha M. Butler, CFA Senior Director +1-312-368-3191 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Gretchen Roetzer Director +1-312-606-2327 Committee Chairperson Donald F. Thorpe, CPA Senior Director +1-312-606-2353 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com; Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. 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